© Reuters. FILE PHOTO: A man counts Sri Lankan rupees in a note counting machine at a money exchange counter in Colombo, Sri Lanka September 7, 2018. REUTERS/Dinuka Liyanawatte
By Jorgelina do Rosario and Rodrigo Campos
WASHINGTON (Reuters) -A committee of Sri Lanka’s international private creditors sent its first debt rework proposal to the country’s authorities regarding over $12 billion in bonds outstanding, according to three sources with direct knowledge of the matter.
It is the first bondholder proposal after the island-nation of 22 million people defaulted on its debt a year ago. It is a first formal step to engage with the country’s authorities, said one of the people, who asked not to be named because discussions are private.
Details of the proposal were not immediately available.
Representatives for the government did not respond to a request for comment. A spokesperson representing the creditor committee declined to comment.
The group of about 30 creditors includes global investment companies Amundi Asset Management, BlackRock (NYSE:), HBK Capital Management and T. Rowe Price Associates.
Bondholders and government officials met in Washington this week, with legal and financial advisers for both sides present, said two sources.
Separately, the Paris Club of creditor governments said on Friday it aims to start negotiations to restructure Sri Lanka’s bilateral debt after a committee was set up by French, Japanese and Indian finance ministers, and representatives of Sri Lanka.
China, Sri Lanka’s biggest bilateral creditor, did not join the announcement.
After the COVID pandemic that ruined the tourist sector, a spike in prices of imports following the start of the Ukraine war, and economic mismanagement, Sri Lanka fell into its worst financial crisis in more than seven decades.
Sri Lanka secured last month a $2.9 billion program from the International Monetary Fund to tackle its huge debt burden.
Exclusive – Sri Lanka’s bondholders have sent a proposal to the government to restructuring the country’s foreign debt, according to sources.
The nation, which is facing a deep economic crisis due to the Covid-19 lockdown, has debt worth over US $ 44 billion and it is renegotiating with a number of its lenders.
The details of the proposal are not known, but sources familiar with the matter said that the initiative is being spearheaded by domestic and foreign bondholders with the help of credit insurers and trustees. It is believed that the proposal approved by the Central Bank of Sri Lanka will be sent to the Ministry of Finance.
The plan is aimed at reducing the government’s debt burden and improving the country’s fiscal health. It seeks to restructure the debt maturing until 2034 and provide some relief from interest payments.
The proposal also looks to address various issues such as the impact of forex fluctuations, hedging costs and aligning with proposed global debt restructuring standards.
The Sri Lankan government is expected to review the proposal and take action accordingly. It is likely that, if accepted, the plan will offer much-needed respite to debt-ridden Sri Lanka and help the country recover from its economic woes.
The government is also holding talks with the International Monetary Fund (IMF) and the World Bank to obtain financing to support the nation’s recovery. It is hoped that the debt restructuring proposal by bondholders and other lenders will provide much-needed assistance and enable Sri Lanka to move forward.