• Barclays maintains an "overweight" rating on Sri Lanka's bonds, recommending the purchase of those with higher past due interest claims due to favorable restructuring developments and signs of economic recovery.

Barclays maintains an "overweight" rating on Sri Lanka's bonds, recommending the purchase of those with higher past due interest (PDI) claims due to favorable restructuring developments. The bank projects a recovery value of 62 at a 12% exit yield, aligning with its fair value estimate of 60-65, with potential upside from improved exit yields. Key factors include the IMF's disbursement of $336 million under the Extended Fund Facility (EFF), Sri Lanka meeting end-2023 quantitative targets and most structural benchmarks, and the Sri Lankan cabinet's approval of debt agreements with bilateral creditors.

Barclays' model, which assumes a starting coupon of 4% that steps up to 8% and a 10-year maturity extension with principal amortizations starting from 2028, anticipates a recovery value in the mid-50s with a 20-30% principal haircut. The restructuring includes a consent fee of 1.8%, an 11% haircut on past-due interest, and macro-linked bonds triggered by USD nominal GDP with a control variable based on real GDP growth. The macroeconomic situation in Sri Lanka is stabilizing, with economic recovery signs, moderated inflation, increased remittances and tourism, and improved external and fiscal positions. Barclays is optimistic but cautious about the impact of the upcoming political cycle and global growth on sustaining economic momentum.

Barclays says it remains “overweight” on SL ISBs | Daily FT