Government and Creditors Begin Third Round of Debt Restructuring Talks

September 14, Colombo (LNW): Sri Lanka’s private creditors and the country’s government officials are holding a third round of talks this week to agree on the restructuring of $12.6 billion in defaulted bonds, according to people familiar with the matter, Blomberg news agency reported. . 

This new round of negotiations — the first since creditors and the government reached a preliminary agreement on a debt rework in early-July — also marks the third time bondholders have gone “restricted,” or prevented from trading the securities while talks are ongoing, the people said, asking not to be named because talks are private. 

Representatives for the bondholders and the government didn’t reply to a request for comment. The creditor group holds about 50% of the outstanding overseas bonds and includes Amundi SA, BlackRock Inc. and T Rowe Price.

The committee is represented by its legal adviser White & Case LLP and its financial adviser Rothschild & Co. 

The government is seeking to reach a final agreement on the debt before the country’s presidential election set for Sept. 21, one of the people said, adding that a statement with details on the ongoing negotiations may be released next week.

The July deal with private bondholders envisaged a 28% nominal reduction in the bonds’ principal, and the issuance of so-called macro-linked bonds, whose payouts are linked to economic growth. The agreement needs the backing of the International Monetary Fund and the country’s bilateral creditors, such as China and France.

Sri Lanka bonds due in 2030 traded at around 51 cents on the dollar on Friday at 10:19 a.m. London time, according to indicative pricing compiled by Bloomberg. 

The talks are “likely to address the information vacuum market participants have faced since the last notification regarding bond restructuring in late-July,” said Avanti Save, head of Asia credit research and strategy at Barclays Bank Plc. “If an agreement is reached then it also reduces the risk of a long-drawn out renegotiation process post elections.” 

The election will be the first for the country since an economic crisis in 2022 caused living standards to plunge and the government to default on its debt for the first time ever. It is shaping up to be a close race between three candidates, including the incumbent who negotiated the IMF bailout and opposition leader Sajith Premadasa, who plans to reopen negotiations with the multilateral lender, if elected.