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Sri Lanka’s Bonds Drop After President Elect Promises Rejig IMF Deal
September 23, 2024
Sri Lanka’s dollar bonds dropped by 2-3 points after President Elect Anura Kumara Dissanayake vowed to reopen negotiations with the IMF over its $3bn bailout program. Although he has not spelled out his plan on the IMF deal in detail, his backers have said that he plans to seek modifications without throwing out existing terms altogether. Reopening IMF talks could lead to delays in the disbursement of fresh loans from the Washington-based lender. Under the current bailout program, Sri Lanka will need to meet certain economic targets before the IMF approves the next tranche of funding, estimated at ~$350mn.
Separately, Sri Lanka’s creditors won an option to change the governing law of the restructured bonds from New York Law to English or Delaware Law. The change was triggered by a legislation proposed in New York that would limit investors’ recoveries after a debt restructuring. The governing law change would require a three-step mechanism, according to sources. According to the new mechanism, at least 20% of bondholders of country’s any dollar bond would need to notify the government of requiring a change in the governing law. The government would then launch a consent solicitation for the holders of that bond to vote on a change. The governing law would change in the bond if a super-majority of creditors votes in favor. The super-majority percentage is still under discussion, added the sources.
Its 7.85% 2029s dropped by 3 points to trade at 50.2 cents on the dollar.
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