Sri Lanka Closes In on Debt Restructuring With Bilateral Lenders

(Bloomberg) -- Sri Lanka and a group of creditors are in advanced talks over a deal aimed at restructuring the nation’s debt with bilateral lenders, according to people familiar with the matter.

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The government and members of the official creditor committee, which includes India, Hungary and the Paris Club, are exchanging draft versions of the accord, or memorandum of understanding, the people said, asking not to be identified as the talks are private.

The documents are needed to finalize an agreement reached in November between the South Asian nation and the official creditor committee and hash out the few remaining issues before a deal is settled, one of the people said.

The country’s notes due in November 2025 are trading at 59.6 cents on the dollar, while dollar-denominated bonds due in 2030 are trading around 58.6 cents on the dollar, continuing to recover after it failed to agree on a deal with bondholders back in April.

Sri Lanka needs to reach deals with bilateral lenders and bondholders to keep receiving disbursements under its $3 billion bailout from the International Monetary Fund. The IMF will evaluate the deals to ensure they provide enough relief to the island nation that it can meet its debt sustainability parameters.

The country owes $10.6 billion to bilateral creditors, according to government data, with China representing over 40% of that debt. It also needs to restructure $12 billion in debt with overseas private creditors.

Because it has middle-income status, the country is not part of the so-called Group of 20 Common Framework debt initiative, so talks with Chinese official creditors are conducted separately. The people declined to provide any updates on the negotiations between Sri Lanka and China, citing the fact that those talks are separate.

READ: IMF Board Sets June 12 for Sri Lanka Program’s Second Review

Sri Lanka’s central bank governor and the secretary of the treasury didn’t respond to queries from Bloomberg. Cabinet approval was sought for a debt restructuring matter, Cabinet spokesman Bandula Gunawardana said Tuesday, without elaborating, when questioned about whether bilateral creditor debt agreements were discussed.

The Paris Club did not immediately respond to a request for comment.

READ: IMF Ready to Back Sri Lanka Restructuring Talks With Bondholders

Sri Lanka’s first round of talks with dollar bondholders failed to yield an agreement in mid-April, when the government said it had reservations regarding the structure of “macro-linked bonds,” an instrument proposed by international bondholders.

The official creditor committee isn’t requesting a structure similar to the macro-linked bonds in its the debt rework with the country, one of the people said. The payout for those securities would vary depending on the nation’s economic performance.

--With assistance from Asantha Sirimanne, Anusha Ondaatjie and William Horobin.

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