Sri Lanka reaches agreement with bondholders

Sri Lanka has successfully concluded its discussions with bondholders, reaching an agreement on restructuring terms yesterday after an initial round of talks in April ended unsuccessfully.

The government confirmed the development through a notice issued last evening, announcing that a consensus had been reached with advisors to restructure $12.5 billion in outstanding bonds. "At the conclusion of the meetings, Sri Lanka is pleased to report that, following negotiations, the Parties agreed on core financial terms of a restructuring of the International Sovereign Bonds (ISBs), the terms of which are embodied in a joint working debt treatment framework (the Joint Working Framework)," the notice stated.

Key components of the agreement include Governance-linked Bond features incorporated into the terms of one or more series of plain vanilla bond instruments forming part of the Joint Working Framework. The framework proposes a 28 percent reduction in the face value of the bonds, an 11 percent reduction in past interest, with interest payments set to commence in September.

Between June 21 and July 2, 2024, Sri Lanka engaged in restricted discussions with nine members of the steering committee from the Ad Hoc Group of Bondholders of its ISBs. A state-contingent feature within the Joint Working Framework requires confirmation from Sri Lanka’s Official Creditor Committee (OCC) and IMF staff to ensure alignment with the principles of comparable treatment and the debt sustainability objectives of Sri Lanka’s IMF-supported program.

Following the meetings, Sri Lanka’s advisors and the Steering Committee will consult with the Secretariat of the OCC and IMF staff to confirm the framework's consistency with these objectives. Additionally, non-financial provisions were also advanced during these discussions.

Sri Lanka expressed optimism about further constructive interactions to finalize the ISB restructuring, following the successful conclusion of the second round of talks. The Steering Committee, comprising ten of the largest members controlling approximately 50 percent of the aggregate outstanding amount of ISBs, played a significant role in these negotiations.

Sri Lanka was supported by its legal and financial advisors, Clifford Chance LLP and Lazard, respectively, while the restricted members of the Steering Committee were advised by White & Case and Rothschild & Co.

In a related development last week, Sri Lanka signed two separate deals to restructure a significant portion of its debt with the OCC and the Exim Bank of China.