Sri Lanka may be able to draw the outlines of a deal with holders of its defaulted dollar bonds as soon as next month, according to people familiar with the matter.
(Bloomberg) — Sri Lanka may be able to draw the outlines of a deal with holders of its defaulted dollar bonds as soon as next month, according to people familiar with the matter.
Foreign investors who hold the debt are prepared to work out the details of a restructuring, according to the people with direct knowledge of the talks who didn’t want to be named. This is on the basis that the International Monetary Fund review, that began Thursday, doesn’t result in any major changes to the macroeconomic assumptions under which bailout negotiations are taking place, they added.
A successful restructuring will help Sri Lanka to regain a measure of investor confidence after the nation fell into default for the first time in its history last year. It would also help the South Asian nation make its debt more sustainable as envisaged in the $3 billion IMF bailout secured in March, and help to maintain the flow of funding.
The completion of Sri Lanka’s domestic debt restructuring earlier this week and the arrival of officials from the IMF for a first review of its loan program sets the stage for more intense negotiations, according to the people.Â
Sri Lanka’s State Minister for Finance Shehan Semasinghe didn’t respond to phone calls from Bloomberg requesting comment.
Any offer for foreign bondholders may include a menu of options, one of the people said. This includes the so-called value-recovery instruments like GDP-linked warrants to bridge differences in estimates the IMF has for Sri Lanka’s economic growth and what investors expect to be the likely growth rate.
In case Sri Lanka strikes a deal with private bondholders before the nation agrees on terms with official creditors, investors may insist on legal protections such as most-favored creditor clause, another person said. Such a clause requires the borrower to go back to all creditors with the same terms in case they offer a better deal to any one creditor, the person said.
READ: Sri Lanka Gets Closer to IMF Funds With Local Bond Swap Deal
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.