Shares rise as debt restructure spares banks
COLOMBO: Sri Lanka’s bearish bourse made a dramatic turnaround on the first day of trading since the government unveiled a plan to restructure its huge debt burden, AFP reported.
The All Share Price Index on the Colombo Stock Exchange was 6.71 percent higher to close at 10,076.64, the highest figure in 10 months.
Gains were fuelled largely by financial sector shares which rose by over 15 percent after rupee-denominated bonds, largely owned by local banks, were spared a haircut in the debt proposal.
“Banking shares went up 15 to 18 percent and there was a scramble to buy them,” a broker at the exchange told AFP.
Sri Lanka unveiled its domestic debt restructuring plan last Thursday in line with requirements for an International Monetary Fund bailout agreed in March.
The restructure charts a course for Sri Lanka to emerge from bankruptcy after defaulting on its $46 billion foreign debt last year.
Money loaned to the government by banks and other financial institutions will not be affected under the proposal.
But treasury bonds purchased by pension funds will see their interest payments cut substantially and maturity extended by several years.
The government is offering a 30 percent haircut to its international sovereign bond holders, while China and other bilateral creditors have been offered longer maturities and a nine-year moratorium on repayments.
Markets were closed for five days after the restructure plan was announced to prevent panic reactions.
Sri Lanka’s unprecedented economic crisis has eased somewhat since the government secured its $2.9 billion IMF rescue package in March.
June inflation at 12 percent was the lowest since late 2021 after earlier spiking at 70 percent.
The IMF said last month that Sri Lanka’s economy showed “tentative signs of improvement” but warned Colombo still needed to pursue painful reforms.
Last year’s crisis sparked months of civil unrest which eventually toppled then-President Gotabaya Rajapaksa.
His successor Ranil Wickremesinghe has doubled taxes, removed generous subsidies on energy and sharply raised prices to shore up state revenue.