Sri Lanka Announces Agreement in Principle on Sovereign Debt Restructuring with Bondholders and Local Consortium
The Government of the Democratic Socialist Republic of Sri Lanka (“Sri Lanka”) announced today that it has successfully held restricted discussions from 12 to 18 September 2024 with nine members of the steering committee (“Steering Committee”) of the Ad Hoc Group of Bondholders (“Group”). Sri Lanka, along with its legal and financial advisors, Clifford Chance LLP and Lazard, respectively, participated in these discussions with the “Restricted Members” of the Steering Committee and their advisors, White & Case LLP and Rothschild & Co.
The Steering Committee represents ten of the largest members of the Group, which controls approximately 40% of the total outstanding bonds. Additionally, Sri Lanka has engaged in similar discussions with the Local Consortium of Sri Lanka (“LCSL”), which controls around 12% of the bonds. These meetings were also supported by the legal and financial advisors Baker McKenzie and Newstate Partners LLP.
During these discussions, the parties addressed concerns raised by the International Monetary Fund (“IMF”) and the Official Creditor Committee (“OCC”) regarding the debt treatment framework (“JWF”) initially agreed upon in June 2024. With feedback from the IMF and OCC, Sri Lanka designed a revised debt treatment plan that aligns with the parameters of Sri Lanka’s IMF-supported program and meets the comparability of treatment principle.
Sri Lanka is pleased to announce that it has reached an agreement in principle with the Restricted Members of the Steering Committee and the LCSL on the comprehensive restructuring of the bonds. The financial terms of these agreements, including governance-linked bond features, are outlined in the annex attached to this statement. The restructuring includes the introduction of the “Local Option,” developed in collaboration with the LCSL, and provisions that prioritize local bondholders.
Key non-financial provisions, such as a loss reinstatement clause, most-favored creditor protections, and mechanisms for changing the governing law of new securities, were also agreed upon. Additionally, Sri Lanka reached an agreement in principle with China Development Bank (CDB) on restructuring $3.3 billion of debt, following several months of consultations.
Sri Lanka remains committed to finalizing the legal documentation and securing the necessary approvals to expedite the implementation of these agreements. The restructuring marks a significant milestone in restoring Sri Lanka’s debt sustainability under its IMF-supported program.
