A UK-based hedge fund that saw gains from its investments in Sri Lanka dollar bonds in 2023 expects the external debt restructuring to be completed on more favourable terms for the country than its debt-stressed peers.
According to Bloomberg, UK-based Promeritum Investment Management has posted gains every year since its inception in 2015 and had a record 16% return last year mainly taking advantage of Sri Lanka’s debt restructuring, Tunisian bonds and the Nigerian naira’s devaluation.
Quoting a document shared with its client, Sri Lanka accounts for 13% of the fund’s investments, followed by 11% for Tunisia and 8% for Nigeria, while South Africa comprises the largest share at 23%.
Moreover, the hedge fund says that similar gains are possible in 2024 as Sri Lanka, Ghana and Zambia conclude debt restructurings–potentially sparking a new bond rally while slowing inflation could also provide a tailwind for local debt from South Africa to central and eastern Europe.
“Once the restructuring happens we definitely expect the next leg” of gains, told Pavel Mamai, London-based managing partner and co-founder of the $ 377 million fund to Bloomberg.
“We believe that the restructurings are likely to be on better terms than what the market currently assumes. There’s still some trades on the distressed side, some prices which have not reached its full potential.” he said.
According to a Bloomberg index tracking sovereign dollar debt, the best gains in emerging-market debt year-to-date come from distressed or junk-rated nations with Ecuador, which restructured its bonds in 2020, topping the list with 30%, followed by Egypt and Bolivia, Kenya’s $ 1.5 billion sale of seven-year bonds demonstrated that even a country with stressed state finances can access the international debt market to refinance.
That “affects the market’s view on exit yields in the restructuring stories,” Mamai said. “With the right set of policies and the IMF’s support, if Kenya can access the market and refinance debt, then why wouldn’t Sri Lanka or Ghana be able to do that later?” he added.
Mamai said that Sri Lanka is one of the fund’s top holdings because it has a chance of concluding its debt talks sooner than its peers and on more beneficial terms to the country.
source: the daily morning
