By:Staff WriterColombo (LNW): A proposed restructuring of Sri Lanka’s debt to dollar bondholders in the shape of new “macro-linked bonds” looks “extremely generous” to investors, according to analysts at Citibank.
Sri Lanka dollar bonds look attractive, and fair value for macro-linked could be in the high 50s to mid- 60-cents on the dollar if the proposal is accepted, Johanna Chua and Donato Guarino, strategists at Citi wrote in a note
Sri Lanka’s 7.55% 2030 bond advanced to 47.4 cents on the dollar Monday, the highest since March last year, before the nation’s historic default.
Macro-linked bonds are “a new instrument whose payouts are linked to the evolution of Sri Lanka USD nominal GDP.
The goal of this floating cash-flows structure is to comply with the Debt Sustainability Analysis targets embedded in Sri Lanka’s IMF Program”
Citi estimates a lower probability that the smaller payout for macro-linked bonds — that would be triggered in a lower GDP growth scenario — will be triggered.
Citi said “that they think terms being proposed here are still subject to renegotiation by the government.
The provision of this private creditor bondholder restructuring proposal, alongside news of a preliminary agreement with China Exim Bank on the treatment of $ 4.2 b of outstanding debt should eventually pave the way for an IMF Executive Board approval of the first program review, and $ 334 m in tranche disbursal by November,”it added.
Sri Lanka’s private creditors have sent a proposal on how to restructure $12 billion of overseas debt, including a new type of bond designed to ease repayments in case of future economic pressure, said two official sources .
The country of 22 million people tipped into its first foreign debt default in May 2022, after a severe shortage of dollars triggered its worst financial crisis since independence from Britain in 1948.
The proposal sent on Oct. 2 provides a write-down, or haircut, on both capital and interest, added the sources who declined to be named because the talks are private.
It foresees issuance of regular sovereign bonds and also of so-called Macro Linked Bonds (MLBs), which will automatically lower coupon payments starting in 2027 if Sri Lanka fails to meet some of the economic targets linked to its International Monetary Fund (IMF) programme.