While Sri Lanka is in a win-win situation by reaching an agreement to restructure US $12.5 billion of bonds (ISBs) this week, the crisis is not over yet with economists saying that critical reforms must be adhered to, to ensure sustainability.
“Every time, Sri Lanka has abandoned its reform process because elections were approaching, or the government changed after elections, or for some other political reasons. If the same cycle continues, the consequences in a crisis-ridden economy are far more critical than in the past,” noted top economist Prof. Sirimal Abeyratne.
Informed sources said the instruments used in the decision include a novel *Governance-Linked* *Bond (GLB)* designed by *Verité Research* in Colombo, with Sri Lanka making history as the *first* *country* to engage in this novel governance linked instrument.
Meanwhile the repayment of the outstanding debt exceeding $8 billion due from 2028 onwards will become more complicated as the Macro Link Bonds are linked to the economic growth progress (GDP) of Sri Lanka, a former treasury secretary told The Sunday Times Business.
Bondholders agreed to take a 28 per cent nominal reduction on the bonds, according to a Finance Ministry statement.
Government authorities held restricted discussions with the Steering Committee of Bondholders regarding its ISBs from June 21 to July 2, 2024 with the participation of legal and financial advisors Clifford Chance LLP, Lazard, White & Case, and Rothschild & Co.
The Steering Committee of the Ad Hoc Group of Bondholders comprising 10 major bondholders representing 50 percent of the ISBs, held a working session in Paris on June 27-28.
The Ad Hoc Group of Bondholders agreed to a haircut of 11 per cent from this accrued interest bringing it down to $1.66 billion.
It has been decided to issue new sovereign bonds specifically for this adjusted sum, called plain vanilla bonds, with a maturity period of 4 years and a coupon rate of 4 per cent. Payments will be commenced from September 30, 2024.
In addition, a payment of $225 million has to be settled as a consideration for expressing consent to the restructuring process.
Source: Sunday Times
