Sri Lanka asks dollar debt holders for 30% haircut

Sri Lanka asks dollar debt holders for 30% haircut

Sri Lanka is requesting foreign investors in its international sovereign bonds to accept a 30% reduction in value, and is also seeking similar concessions from holders of its other dollar-denominated bonds. This is part of the country’s efforts to restructure its significant debt, according to the central bank governor, Nandalal Weerasinghe. He revealed the details of the long-awaited plan during a press conference. Additionally, as part of a domestic debt restructuring program, the government will convert treasury bills into long-term bonds.

Sri Lanka is currently facing its most severe financial crisis since gaining independence from Britain in 1948. The country experienced record lows in foreign exchange and had its first foreign debt default last year. To address this issue, Sri Lanka secured a $2.9 billion bailout from the International Monetary Fund (IMF) in March. The domestic restructuring is necessary to achieve the IMF program’s objective of reducing overall debt to 95% of GDP by 2032.

Simultaneously, the government is actively working on renegotiating its foreign debt with bondholders and bilateral creditors, including China, Japan, and India.

Regarding the domestic debt revamp, Weerasinghe outlined three options for holders of locally issued dollar-denominated bonds, such as Sri Lanka Development Bonds (SLDBs). The first option is similar to the treatment proposed for investors in the country’s international sovereign bonds, which involves a 30% reduction in the principal amount, a 6-year maturity, and a 4% interest rate. However, Weerasinghe mentioned that discussions are still ongoing regarding this proposal.

Sri Lanka currently has $12.5 billion in international sovereign bonds. Domestic bondholders have two other options. The second option is comparable to the treatment offered to bilateral dollar creditors, which includes no reduction in the principal amount, a 15-year maturity, a 9-year grace period, and a 1.5% interest rate. The third option allows bondholders to exchange their holdings for local currency denominated instruments, with no reduction in the principal amount, a 10-year maturity, and an interest rate of SLFR (Sri Lanka Standing Lending Facility Rate) + 1%.

In a significant development, the World Bank approved $700 million in budgetary and welfare support for Sri Lanka, marking the largest funding tranche for the country since the IMF deal in March. Out of the total funds, $500 million will be allocated for budgetary support, while $200 million will be dedicated to welfare support for those most affected by the crisis.

The domestic debt program was approved by Sri Lanka’s cabinet during a special meeting on Wednesday. The program will cover a portion of the country’s $46.9 billion domestic debt, with $27.8 billion held as treasury bonds, according to the latest data from the Finance Ministry. Superannuation funds, including pension funds, will have their local currency bonds replaced with new bonds offering a 9% interest rate, as part of the restructuring.

The proposed restructuring program will be presented to parliament for approval on Saturday.

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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