Sri Lankan Airlines suspends its sovereign bond interest payments
The Sri Lankan Authorities relay the announcement by Sri Lankan Airlines Limited that it has launched consent solicitation to its holders of US$175 million sovereign guaranteed bond of the national carrier with 7 percent interest due in 2024.
The Airline has requested a 12 month suspension of debt service payments amongst other things covering the upcoming two coupon payments due on December 25 2022 and June 25 2023.on the bond and temporary waiver on events of default that are currently undergoing, finance ministry confirmed.
The bond was sold to fund losses after then President Mahinda Rajapaksa terminated a management contract with Emirates and re-nationalized the airline.
The request for the suspension of interest payment after the consent of creditors will give sufficient time for the government authorities to devise a reorganization plan and a long strategy for the Sri Lankan Airlines Limited and to hold discussions with the company stakeholders, the finance ministry claimed. .
SriLankan Airlines Limited’s (SLA) payment of $6.13 million interest on its government-guaranteed $175 million unsecured notes within the 30-day grace period in July 2022 has no impact on the notes, a senior official said.
The notes, which are due in 2024, remain in breach of two specific events of default tied to the guarantor – the government of Sri Lanka – as governed by the notes’ trust deed.
They are (i) the government’s 12 April 2022 announcement of a moratorium on the payment of principal and interest on its external debt, and (ii) the government’s default on the payment of interest on an external debt amount exceeding $ 25 million in April 2022, and the expiry of the associated grace period in May 2022.
In addition, the debt moratorium overhang affecting external debt of the government and that of public sector borrowers such as SLA is still in place, he said , adding that it was a continuation of a default-like process for affected creditors.
The payment relates to a $175 million bond with a 7 percent coupon listed in Singapore, according to a filing with the Singapore stock exchange.
There was no comment from the central bank and finance ministry on why the government decided to repay SriLankan Airlines’ sovereign guaranteed interest payment while defaulting May 19 sovereign debt repayment payment of $.78 million of a sovereign bond after one month grace period.
The $84 billion economy is unable to borrow from the global capital market and other countries as its ratings have been downgraded to near default ratings by all three global rating agencies.