Bonds held by pension funds likely to be restructured; banks excluded

• Restructuring/optimization will apply only to Treasury bills held by the Central Bank and the bonds held by superannuation funds
• Under indicative terms of DDO, the Central Bank proposed to convert T-bills held by the Central Bank to T-bonds with no haircut but with a step-down coupon profile from 12.4 percent to 5 percent

The Central Bank on Wednesday presented possible domestic debt restructuring scenarios to the Cabinet of Ministers, which indicated that restructuring/optimization will apply only to Treasury bills held by the Central Bank and the bonds held by superannuation funds.

Interestingly, it appears that banks have been excluded in the process. 

However, the details of the DDR/DDO plan approved by the Cabinet of Ministers on Wednesday are yet to be disclosed.

Under indicative terms of DDO, the Central Bank proposed to convert T-bills held by the Central Bank to T-bonds with no haircut but with a step-down coupon profile from 12.4 percent to 5 percent. 

On the T-bonds held by superannuation funds, exchange against longer term maturity T-bonds is proposed, again with no haircut but with a step-down coupon profile from 12 to 9 percent.
After the special cabinet meeting held on Wednesday afternoon, MP Gamini Lokuge told reporters that despite DDR, returns paid to Employees’ Provident Fund members will not fall below 9 percent.

It has also been proposed to increase income tax to 30 percent from the current special treatment at 14 percent for superannuation funds that do not meet the minimum DDR participation requirement.