Sri Lanka international bonds extend rally

LONDON:Sri Lanka’s international bonds extended their rally on Monday following a proposal last week by private creditors to overhaul the country’s $12.5 billion marketable debt pile with the help of a newly designed instrument, Reuters reported.

Dollar-denominated bonds issued by the island nation rose around 2.5 cents across the curve with most of the issues bid between 48.8-50.5 cents in the dollar, Tradeweb data showed.

A group of private holders of the bonds proposed on Friday to the government the issuance of 10 bonds linked to the country’s macroeconomic health — so-called Macro Linked Bonds (MLBs) — that will mature between 2027 and 2036 and would see holders take a 20% haircut on the principal.

It would be the first time MLBs are used in a debt restructuring.

Citi strategist Donato Guarino said in a note to clients on Monday that the proposal looked “extremely generous,” calculating the bonds’ fair value at the high 50s to mid-60s cents in the dollar.

“This should further support the current bonds that look attractive, in our view,” said Guarino.

Barclays analysts in a note on Friday also said the usage of MLBs had raised their recovery estimates to as high as 55-60 cents in the dollar while the bank upped its rating on the debt to an “overweight” position.

“Additional upside would be possible if there were a relatively small (up to 5y) maturity extension,” said Barclays’ Avanti Save.

Still, analysts noted that it was early days in the exchange with bondholders and the shape of a final deal remained unclear.

“We caution that this is only a proposal, and given what seems to be generous terms for the bondholders, is still subject to renegotiation by the government,” said Citi’s Guarino.