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Sri Lanka private creditors said to be frustrated over lack of progress

Bondholders involved in Sri Lanka's debt restructuring are experiencing frustration due to a perceived lack of progress in negotiations, particularly in the context of a lawsuit filed by Hamilton Reserve, a major investor. Hamilton Reserve, representing a significant stake in a billion-dollar bond, has initiated legal action. This complicates matters for other bondholders who have formed a negotiation committee. Western governments have asked for a pause in legal proceedings to allow negotiations to continue, but the prospects of concluding a deal by the court's initial deadline are dimming.

Amidst these legal complexities, Sri Lanka's response to the restructuring proposals has been tepid. The country rejected an offer for a state-contingent bond with high initial coupons, leading to a stalemate in negotiations. This inaction is causing mounting frustration among investors who are keen to reach a compromise. A senior Sri Lankan official, however, claims that the government is actively engaged and interested in finalizing a deal, citing ongoing exchanges between advisors, though private investors have a differing view.

The situation is further complicated by differing perceptions of the IMF's growth projections and the structure of proposed securities. Private investors, believing these projections to be overly pessimistic, proposed GDP-linked securities, which Sri Lanka is reluctant to accept. Additionally, the bondholders are concerned about the equity of terms compared to those offered to bilateral creditors and China Exim Bank. This discrepancy, combined with domestic resistance to favorable terms for foreign investors, adds layers of complexity to reaching a swift resolution.

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