SL requests US court dismiss Hamilton Reserve Bank’s default case
The Sri Lankan government has said that cooperation from the island nation’s creditors would be key to gaining a much-needed bailout from the IMF for the bankrupt country.
It has also asked a US judge to dismiss the complaint filed by Hamilton Reserve Bank for bond default as it will become a stumbling block to the countries debt restructuring process.
On September 1, the International Monetary Fund (IMF) announced that it will provide Sri Lanka with a loan of about USD 2.9 billion over a four-year period to help the island nation overcome the unprecedented economic turmoil.
The bailout package is expected to boost the country’s credit ratings and the confidence of international creditors and investors.
At an online engagement with the creditors, the government on Friday said that assurances from bilateral creditors are required as a prerequisite to the IMF board adoption of the programme. It is expected to materialise by mid-December.
The IMF does not lend to countries whose debt is deemed unsustainable, requiring Sri Lanka to undertake an upfront comprehensive debt treatment.
“In practice, this requires financing assurances to be given by the bilateral creditors, resulting in a sufficient level of comfort to the IMF that bilateral creditors will support Sri Lanka’s efforts to restore public debt sustainability,’’ the government said.
The Sri Lankan government has asked a US judge to dismiss the complaint filed by Hamilton Reserve Bank for bond default, Bloomberg reported.
The government has asked for the case in New York over the country’s debt default to be dismissed, claiming that the litigation initiated by one bank is a “apparent attempt to gain leverage over a nation in crisis and jump ahead of other international creditors.”
Hamilton Reserve Bank, situated in the Caribbean islands of St. Kitts and Nevis, launched legal action in response to the country’s failure to repay a $1 billion sovereign bond.
The 5.875% International Sovereign Bonds were due for payment on July 25, 2022, which was two months ago.
When contacted by News 1st, the Finance Ministry verified that arguments about the relevant issue had been submitted.
According to court records obtained by News 1st, Hamilton Reserve Bank has charged Sri Lanka with owing it a total of US$257,539,331.25 under the conditions of the Bonds. The principal is $250,190,000, and the interest is $7,349,331.25.
The Hamilton Reserve Bank earlier said that Sri Lanka’s default was engineered by people at the highest echelons of the country’s government, and that the Rajapaksa family was to blame.
The government added that bilateral financing assurances are a commitment from official bilateral creditors to grant Sri Lanka a debt treatment compatible with the macroeconomic framework and debt sustainability to underpin the contemplated IMF programme.
Explaining it further the government held that private financing assurances are considered as obtained by the IMF once Sri Lanka is making a “good faith” effort to reach a collaborative agreement with its private creditors – Giving creditors the early opportunity to provide input in the framework underpinning the debt restructuring.
The severe economic downturn, weak Sri Lanka revenues, rising health expenditure and energy needs led to a worsening of the fiscal situation.
While the decline in growth partly led to shrinking revenues, Sri Lanka had to increase spending to safeguard its population from a double-pronged health and energy crisis, primary balance, revenues and expenditures.
In mid-April, Sri Lanka declared its international debt default due to the forex crisis. The country owes US$ 51 billion in foreign debt, of which $ 28 billion must be paid by 2027.
It was said that international bondholders have formed a creditor committee comprising close to 100 members. The group represents more than 55 per cent of the international bondholders.
A group of local private banks holding International Sovereign Bonds have also formed a group.
The presentation said the effective way to obtain financing assurances quickly is the creation of a bilateral creditor coordination platform.
This would enable them to deliver financing assurances and validate the IMF programme through a fast-track solution, allowing Sri Lanka’s economy to recover.