S&P downgrades SL Bonds to ‘D’ after missed payments

Rating agency S&P yesterday downgraded several Sri Lankan Bonds to “D” from “CC” after missed payments though affirming its ‘SD’ long-term and ‘SD’ short-term foreign currency sovereign ratings.

“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,” S&P said.

“In addition, we lowered to ‘D’ from ‘CC’ the issue ratings on the following bonds with missed coupon or principal payments: $ 1.0 billion, 6.85% bonds due March 14, 2024; $ 1.4 billion, 7.85% bonds due March 14, 2029 and $ 1.5 billion, 7.55% bonds due March 28, 2030.

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

The Government remains in default on some foreign currency obligations, including international sovereign bonds (ISBs).

“We do not expect the Government to make payments on the ISBs within 30 calendar days after their due dates. We lowered the ratings on the affected bonds to ‘D’ from ‘CC’, following missed interest payments due on 14 September and 28 September 2022,” S&P said. 

It also affirmed its ‘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...

“Our foreign currency rating on Sri Lanka is ‘SD’ (selective default). We do not assign outlooks to ‘SD’ ratings because they express a condition and not a forward-looking opinion of default probability,” S&P added.

The negative outlook on the local currency rating reflects a 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 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 its 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.

Sri Lanka’s external public debt moratorium prevents payment of interest and principal obligations due on the Government’s ISBs. This would have affected interest payments due 14 September and 28 September, on its ISBs maturing 2024, 2029, and 2030.

“Following the missed payments, and given our belief that payments were not made within 30 calendar days of the due dates, we lowered the issue ratings on these bonds to ‘D’ (default),” S&P said.Rating agency S&P yesterday downgraded several Sri Lankan Bonds to “D” from “CC” after missed payments though affirming its ‘SD’ long-term and ‘SD’ short-term foreign currency sovereign ratings.

“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,” S&P said.

“In addition, we lowered to ‘D’ from ‘CC’ the issue ratings on the following bonds with missed coupon or principal payments: $ 1.0 billion, 6.85% bonds due March 14, 2024; $ 1.4 billion, 7.85% bonds due March 14, 2029 and $ 1.5 billion, 7.55% bonds due March 28, 2030.

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

The Government remains in default on some foreign currency obligations, including international sovereign bonds (ISBs).

“We do not expect the Government to make payments on the ISBs within 30 calendar days after their due dates. We lowered the ratings on the affected bonds to ‘D’ from ‘CC’, following missed interest payments due on 14 September and 28 September 2022,” S&P said. 

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

“Our foreign currency rating on Sri Lanka is ‘SD’ (selective default). We do not assign outlooks to ‘SD’ ratings because they express a condition and not a forward-looking opinion of default probability,” S&P added.

The negative outlook on the local currency rating reflects a 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 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 its 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.

Sri Lanka’s external public debt moratorium prevents payment of interest and principal obligations due on the Government’s ISBs. This would have affected interest payments due 14 September and 28 September, on its ISBs maturing 2024, 2029, and 2030.

“Following the missed payments, and given our belief that payments were not made within 30 calendar days of the due dates, we lowered the issue ratings on these bonds to ‘D’ (default),” S&P said.