Sri Lanka’s bondholders give $12.55 bln debt overhaul initial sign off

Sri Lanka said its bondholders had agreed to the government’s proposed restructuring of $12.55 billion of international bonds, a key step in finalizing its debt rework.

Initial results showed holders representing 96% of the outstanding principal on the existing bonds voted in favour of the plan, which will swap Sri Lanka’s defaulted bonds for a series of new fixed income instruments, the government said.

Sri Lanka, which defaulted on its foreign debt for the first time in May 2022 due to its high debt burden and dwindling foreign exchange reserves, said in a statement that final results are due on Dec. 16.

The South Asian island nation’s new instruments include a governance-linked bond, which offers a 75 basis point reduction in the interest rate payable if Sri Lanka meets certain governance targets, and several bonds linked to economic performance.

The defaulted bonds were bidding between 64 and 65.6 cents on the dollar by 1500 GMT, Tradeweb data showed.

Once it finalises the bond exchange, Sri Lanka will be the fourth country to conclude a restructuring of its bonds this year, following in the footsteps of Ghana, Ukraine and Zambia.

That would leave Ethiopia, with its $1 billion defaulted Eurobond, as the last default sparked primarily by the COVID-19 pandemic and Russia’s 2022 invasion of Ukraine.

Sri Lanka’s government has said the deal would save it $9.5 billion in debt service payments over the course of its four-year IMF programme and reduce bond coupons by 31%, to 4.4%.