SL voices serious reservations regarding bondholders’ macro-linked bond proposal

• Finance Ministry says proposal put forth by Ad Hoc Group of Bondholders has not garnered a favourable response
• Says evaluating its alignment with parameters outlined in Sri Lanka’s IMF-supported programme and essential principle of comparability of treatment, both of which remain imperative
• Notes that govt. is prepared to engage in discussions regarding a potential value recovery instrument, provided it is structured in an appropriate manner, while also considering stance of other creditors

The Finance Ministry this week said it does not find the statement made by the Ad Hoc Group of Bondholders last week acceptable, which proposed the provision of upfront debt relief, including the issuance of macro-linked bonds (MLBs).
“The authorities of Sri Lanka wish to acknowledge the group’s proposal and further clarify that this proposal has not received a favourable response from Sri Lanka,” the Finance Ministry said in response to the proposal that was shared last Saturday.
The proposal entailed suggestions as to how Sri Lanka should restructure the US $ 12 billion of overseas debt. It included an option for creditors that combines the MLB notes with a regular bond and a second option of regular bonds with a value recovery instrument (VRI).
Stressing that the government has taken a “good note” of the Ad Hoc Group of Bondholders’ statement dated October 13, the Finance Ministry said the authorities and their advisors intend to take the necessary time to consider the proposal and assess its compatibility with the parameters in Sri Lanka’s International Monetary Fund (IMF)-supported programme and the comparability of treatment principle, as compliance with both of which remains imperative.
The authorities have already expressed to the bondholders’ advisors their serious reservations about the construct of the MLBs proposed by the group.
However, the Finance Ministry said Sri Lanka invites the group to further engage with the country’s debt advisors, under the existing NDAs, to progress the matter in a reasonable and viable way. 
“It is the authorities’ belief that the indicative debt restructuring scenario shared with commercial creditors in May 2023 provided a robust basis for engagement,” it stressed.
Furthermore, sharing the stance of the Sri Lankan authorities, the Finance Ministry pointed out that it is understood that the group may have diverging views on the GDP and exchange rate trajectories projected as part of the IMF-supported programme. 
 “The authorities are therefore ready to discuss a potential value recovery instrument, if structured appropriately, taking into account the position of other creditors,” the Finance Ministry said in a statement.The Finance Ministry’s response follows a Bloomberg report, in which the Citi analysts stated that the investors regarded the proposed MLBs as highly favourable.