Sri Lanka closes US $ 12.5bn bond restructuring deal

• Parties have agreed to include Governance-Linked Bond features in terms of one or more series of plain vanilla bond instruments
• A 28% cut on face value and an 11% reduction on past interest proposed

 By Shabiya Ali Ahlam

Sri Lanka has successfully concluded its discussions with the bondholders, reaching an agreement on the restructuring terms yesterday. This follows an unsuccessful first round of talks in April.

A notice issued by the government last evening confirmed the island nation has reached a consensus with the advisors to restructure US $ 12.5 billion outstanding bonds. 

“At the conclusion of the meetings, Sri Lanka is pleased to report that, following the negotiations, the parties agreed on the 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 said. 

The parties have agreed to include the Governance-Linked Bond features in terms of one or more series of the plain vanilla bond instruments that form part of the Joint Working Framework. 

The framework proposes a 28 percent cut on the face value and an 11 percent reduction on past interest, with interest payments commencing in September.

Sri Lanka held restricted discussions between June 21, 2024 and July 2, 2024 (the restricted period), with nine members of the Steering Committee who agreed to take part in the restricted discussions (the Steering Committee) of the Ad Hoc Group of Bondholders of its ISBs. 

The state-contingent feature in the Joint Working Framework requires confirmation from Sri Lanka's Official Creditor Committee (OCC) to ensure the treatment is comparable to the agreed terms and from the International Monetary Fund (IMF) staff to align with Sri Lanka's IMF-supported programme's parameters and debt sustainability objectives. 

Following the meetings, the advisors to Sri Lanka and Steering Committee will consult with each of the secretariats of the OCC, to confirm the consistency of the Joint Working Framework with the principle of Comparability of Treatment and staff at the IMF. 

This is to confirm the consistency of the Joint Working Framework with the parameters and debt sustainability objectives of Sri Lanka's IMF-supported programme. 

As per the notice, during the restricted discussions, Sri Lanka and the Steering Committee also progressed discussions on certain non-financial provisions. 

Having successfully reached an agreement in the second round of talks, Sri Lanka said it looks forward to further constructive interaction to finalise the ISB restructuring. 

The Steering Committee as a whole comprises 10 of the largest members of the group, with the group controlling approximately 50 percent of the aggregate outstanding amount of ISBs. 

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

Last week, Sri Lanka singed two separate deals to restructure much of its debt. The deals were inked with the OCC and Exim Bank of China.