Sri Lanka strikes US $ 14. 2 billion ISB restructuring, paving way out of bankruptcy

*Finance Ministry says US $ 17 billion saved in debt servicing

*US $ 9.5 billion saved from bond holders alone, US $ 2.5 billion from China Development Bank

*Govt. hopeful that that credit rating will now improve soon

Sri Lanka overcame yet another major obstacle in its attempt to get out of bankruptcy status with the government reaching agreement in principle with the ad hoc group of bond holders, China Development Bank and the Local Consortium of Sri Lanka (LCSL), an informed source said.

It is for restructuring of US $ 14. 2 billion of sovereign bonds.

Following the worst ever economic crisis, the Sri Lankan government announced in April, 2022 that it was defaulting, making it the first sovereign default since its independence in 1948.

Due to the state of bankruptcy, the government had to submit a plan on debt sustainability.

Later, Sri Lanka got a boost when it sealed an agreement earlier with bilateral creditors led by the Official Creditor Committee (OCC), led by Japan, France and India and the Export-Import Bank of China (EXIM). It covers about US $ 5.9 billion of Sri Lanka's outstanding external debt of US $ 37 billion. Besides, the EXIM bank covers about US $ 4 billion of outstanding debts.

Afterwards, the government proceeded with discussions with bond holders and China Development Bank.

In what appeared to be yet another milestone in its path to come out of the status of bankruptcy, the government reached an understanding with the ad hoc group of bond holders, China Development Bank and the local consortium.

The government announced yesterday that it held restricted discussions between September 12, and 18, 2024 with nine members of the steering committee (the "Steering Committee") of the Ad Hoc Group of Bondholders (the "Group") .

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 LLP and Rothschild & Co, respectively. The Steering Committee, as a whole, comprises ten of the largest members of the Group, with the Group controlling approximately 40 percent of the aggregate outstanding amount of the Bonds.

Sri Lanka also announces today that in the last year it has held restricted discussions with members of the LCSL), joined by its legal and financial advisors, Baker McKenzie and Newstate Partners LLP, respectively. The LCSL comprises 11 members, controlling approximately 12% of the aggregate outstanding amount of the Bonds.

Altogether, Sri Lanka secured debt service relief of US $ 17 billion during the entire process of the IMF programme (US $ 2.9 billion from the OCC, US $ 2.4 billion from EXIM Bank of China, US $ 2.5 billion from CDB and US $ 9.5 billion from the bond holders), according to the Finance Ministry.

Asked for a comment, State Minister of Finance Shehan Semasinghe said the major obstacle in getting out of bankruptcy is now over, and once the bond exchange is done, the country’s credit rating will notch up.