Sri Lanka Bondholders said to eye GDP-linked debt restructuring

• Creditors see IMF’s economic growth projection as pessimistic

BLOOMBERG: Sri Lanka’s private creditors are considering a proposal to swap defaulted bonds with new securities that would have cash flow linked to the nation’s future growth, according to people familiar with the matter.

Under the plan, the security being mulled by Sri Lanka’s bondholders will pay less if growth falls to levels projected by the International Monetary Fund, the people said, asking not be identified as the discussions are private. Creditors view the multilateral fund’s economic forecast of about 3% for the next few years as pessimistic, the people said.

Sri Lanka is expected to win final approval later Monday for about $ 2.9 billion in bailout funds from the IMF, a key step for the bankrupt nation to revive its economy from the worst crisis in decades. The posturing ahead of formal negotiations indicates an effort to avoid protracted debt talks, as seen in nations including Zambia and Suriname, and could avoid deeper losses for private creditors in a restructuring following the IMF loan approval.

Sri Lanka wants to start talks with private creditors as fast as possible after the IMF approval is won, State Finance Minister Shehan Semasinghe said, without elaborating.