Hard default looms as ISB Coupon repayment grace period expires in five days

Friday, 13 May 2022 00:25 - - {{hitsCtrl.values.hits}}

Political crisis delays selection of financial advisors and legal consultant and follow up “Consent Solicitation” from ISB holders for pre-emptive negotiated default

Sri Lanka is staring at a possible “hard default” as opposed to pre-emptive negotiated avoidance as the International Sovereign Bonds (ISB) Coupon payment is due in five days from today.

Analysts said ISB Coupon worth $ 78 million fell due on 18 April and those coupons have 30 days to repay if defaulted. That deadline is 18 May.

The Government in mid-April announced a pre-emptive negotiated default of all outstanding debt as of 12 April.

Since then, creditors were hoping that Sri Lanka would get its act together to appoint financial advisors and legal consultants for debt restructuring, a process from which the Government was to obtain “Consent Solicitation” from all ISB holders for payment suspension by 18 May.

Whilst the Finance Ministry received over 20 expressions of interests each for the two roles, the competent parties have not been selected as yet. The Central Bank Governor Dr. Nandalal Weeerasinghe on Wednesday said parties have been short-listed and recommendations would be submitted at the next Cabinet meeting for approval.

The process faced multiple snags during the worsening political instability in recent weeks as with the resignation of Prime Minister Mahinda Rajapaksa, the Cabinet remained dissolved.

Analysts opined that even if a new Cabinet is appointed soon and its first meeting approving the financial advisors and legal consultants, the question will be whether Sri Lanka has enough time to what is required to avert the “hard default.”

In the event the latter becomes a reality rating of Sri Lanka will be further downgraded.

As per the Ministry of Finance debt suspension list, apart from $ 78 million ISB Coupon that fell due on 18 April, some of the others that fell due until 11 May included $ 51.38 million ISB Coupon 3 May, and $ 46.5 million ISB Coupon 11 May.

Those falling due from 20 May includes $ 19.9 million ISB Coupon on 3 June, $ 15.88 million ISB Coupon on 28 June, a further $ 34.13 million on 18 July and $ 1 billion ISB Maturity on 25 July. Debt suspended include IMF debt repayment and those due to other lenders.