US bondholder sues Sri Lanka following debt default

• Hamilton Reserve Bank holds more than US $ 250mn of SL’s 5.875% and ISBs due July 25
• Hamilton’s lawyers say default being “orchestrated by officials at highest levels of government”, including Rajapaksa family
• Accuses SL of excluding bonds held by domestic banks and other interested parties from an announced debt restructuring

Sri Lanka has been sued in the US by a bondholder after the island nation defaulted on its debt for the first time in history amid an unprecedented economic crisis caused by the pandemic and gross economic mismanagement. 

Hamilton Reserve Bank Ltd, which holds more than US $ 250 million of Sri Lanka’s 5.875 percent International Sovereign Bonds due July 25, filed the suit on Tuesday in a New York federal court, seeking full payment of principal and interest, Bloomberg reported. 

Hamilton Reserve, based in St. Kitts and Nevis, said in the lawsuit that the default is being “orchestrated by officials at the highest levels of government”, including the ruling Rajapaksa family and accused Sri Lanka of excluding bonds held by domestic banks and other interested parties from an announced debt restructuring. 
“As a result, these favoured Sri Lankan parties stand to be paid principal and interest in full, while the bonds -- which are also broadly held by the US retirement systems, including Fidelity Investments, BlackRock, T. Rowe Price, Lord Abbett, JPMorgan, PIMCO, Neuberger Berman and other US investors -- remain indefinitely in default and unpaid, causing American retirees tremendous suffering from potentially massive losses of up to 80 percent of their original investment value,” lawyers for Hamilton Reserve were quoted as saying by Bloomberg. 

Sri Lanka hired Lazard Ltd and Clifford Chance LLP in May to serve as financial and legal advisors on debt restructuring, as the country seeks a bailout from the International Monetary Fund (IMF). 

The government on Monday began talks with the IMF, working toward an agreement that could offer creditors enough comfort to lend fresh funds to the bankrupt nation that’s seeking US $ 6 billion in coming months.