Sri Lanka's bondholders have approved the government's proposal to restructure $12.55 billion of international bonds, marking a significant step in the nation’s debt overhaul. Results indicate that 97.86% of bondholders voted in favor of the plan, which involves swapping defaulted bonds for new fixed income instruments.
This move follows Sri Lanka's default on foreign debt in May 2022, attributed to high debt levels and declining foreign exchange reserves. With this restructuring, Sri Lanka joins Ghana, Ukraine, and Zambia as the fourth country to complete a bond restructuring this year.
The new instruments include a governance-linked bond that offers a 75-basis-point interest rate reduction contingent on meeting specific governance targets, along with several performance-linked bonds. Investor support was strong across all bonds except for the 2022 maturity bond, which received only 73.13% approval.
The 2022 bond lacks aggregated collective action clauses, leading to Hamilton Reserve Bank, a major holder, to pursue full payment through litigation in New York, as it continues to hold out for better terms. Despite this, the overall bond exchange remains unaffected, allowing supportive investors of the 2022 bond to receive new bonds in exchange for their defaulted ones.
Holders of the 2022 bonds who opted out of the exchange will retain their current bonds, as stated by the government in its regulatory notice.