S&P downgrades SL Bonds to ‘D’ after missed payments: Sovereign ratings affirmed

S&P Global Ratings yesterday affirmed its ‘SD’ long-term and ‘SD’ short-term foreign currency sovereign ratings on Sri Lanka. 

At the same time, we affirmed our ‘CCC-’ long-term and ‘C’ short-term local currency sovereign ratings. The outlook on the long-term local currency rating remains negative.

In addition, it lowered to ‘D’ from ‘CC’ the issue ratings on the following bonds with missed coupon or principal payments:

•  $ 650 million, 6.125% bonds due 3 June 2025
•  $ 1.0 billion, 6.825% bonds due 18 July 2026
•  $ 1.0 billion, 5.875% bonds due 25 July 2022
•  $ 500 million, 6.35% bonds due 28 June 2024

S&P said the Sri Lanka Government remains in default on some foreign currency obligations, including international sovereign bonds (ISBs).

“We do not expect the Government to make the payments within 30 calendar days after their due dates. We lowered the ratings on the affected bonds to ‘D’, following missed interest payments due on 3 June, 28 June, and 18 July, and a missed principal payment due 25 July,” S&P said.  

It also affirmed ‘SD/SD’ foreign currency and ‘CCC-/C’ local currency ratings on Sri Lanka. The outlook on the long-term local currency rating is negative.

S&P said its transfer and convertibility assessment at ‘CC’ is unchanged.

The negative outlook on the local currency rating reflects the high risk to commercial debt repayments over the next 12 months in the context of Sri Lanka’s economic, external, and fiscal pressures.

“We could lower the local currency ratings if there are indications of non-payment or restructuring of Sri Lankan rupee-denominated obligations,” S&P said. 

“We could revise the outlook to stable or raise the local currency ratings if we perceive that the likelihood of the Government’s local currency debt being excluded from any debt restructuring has increased. This could be the case if, for example, the Government receives significant donor funding, which gives it some time to implement immediate and transformative reforms,” it added. 

S&P also said it would raise our long-term foreign currency sovereign credit rating upon completion of the Government’s bond restructuring. The rating would reflect Sri Lanka’s post-restructuring creditworthiness. “Our post-restructuring ratings tend to be in the ‘CCC’ or low ‘B’ categories, depending on the sovereign’s new debt structure and capacity to support that debt,” it added.