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Sri Lanka’s Dollar Bonds Rally Over 2 Points on Targeting 30% Haircut on Local and Dollar Debt
June 30, 2023
Dollar bonds of Sri Lanka rallied by 2-3 points across the curve after the nation asked its local and offshore bondholders to take a 30% haircut as part of its restructuring efforts. Nandalal Weerasinghe, the central bank governor said that this might involve a 30% reduction in principal with repayment in six years at an interest rate of 4%. This comes as a positive surprise as market participants saw it as a lower-than-expected haircut. For instance, Lutz Roehmeyer, fund manager at Capitulum Asset Management said, “Sri Lanka is under enormous pressure to restructure as quickly as possible and get its economy back on track, they need funds to import a lot of goods… 30% haircut is too little given the shape the country’s economy is in”. Sri Lanka plans to complete the restructuring by September so that it aligns with the IMF’s review. The restructuring is part of its plan reach the IMF’s goal of reducing overall debt to 95% of GDP by 2032. Earlier yesterday, the World Bank approved a $700mn budgetary and welfare support, its largest funding since the IMF deal in March.
Sri Lanka’s dollar bonds are trading at 42-44 cents on the dollar.
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