Sri Lanka Inks Final Pacts To Recast $10 Billion Of Debt

(Bloomberg) -- Sri Lanka reached final restructuring agreements worth $10 billion, including with an Official Creditor Committee of bilateral lenders and China’s Exim Bank, providing much-needed relief to the beleaguered island nation. 

Sri Lankan officials in Paris on Wednesday signed a memorandum of understanding to restructure $5.8 billion of debt, finalizing an initial agreement struck late last year with the group of official creditors led by France, India and Japan. Local authorities also on Wednesday reached a final agreement on debt treatment between Sri Lanka and China’s Exim Bank worth $4.2 billion.

The debt overhaul will allow Sri Lanka to allocate funds to essential public services and secure concessional financing for development needs, the president’s media division said in a statement. 

Sri Lanka can now delay the payment of debt to foreign countries until 2028, President Ranil Wickremesinghe said in an address to the nation. The South Asian nation will subsequently repay loans on concessional terms until 2043, he said. 

Making progress with debt restructuring is a crucial parameter to keep funding flowing from the International Monetary Fund, which has so far disbursed about a third of a $3 billion bailout for the South Asian economy. Sri Lanka needs to continue securing further tranches of IMF aid to keep its economic recovery on track, with presidential elections expected before mid-October. 

Sri Lanka’s 6.75% 2028 dollar bond fell about half a cent to 59.6 cents on the dollar, according to indicative pricing compiled by Bloomberg, the most since mid-April. Dollar bonds maturing in 2027 and 2025 also fell by a similar amount.

The conclusion of negotiations with dollar bondholders and finalizing debt restructuring talks with China Development Bank remain.

Sri Lanka continues to engage with bondholders to find common ground even as an agreement hasn’t yet been reached, junior finance minister Shehan Semasinghe said in a post on X.

“The OCC also expects that the Sri Lankan authorities will continue to engage with their private creditors to find as soon as possible an agreement,” the Paris Club added in a statement.

--With assistance from Jorgelina do Rosario and Anirban Nag.

(Updates with president’s comment in fourth paragraph)

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