SL requests four-month stay of proceedings of case filed by Hamilton Reserve Bank

By Ashwin Hemmathagama 

in New York

Sri Lanka has requested a four-month stay of proceedings in the ongoing case with Hamilton Reserve Bank Ltd. in the United States District Court for the Southern District of New York.

The request aims to provide the necessary time to finalise legal documentation and fully implement the restructuring agreements, including negotiating the terms of new securities to be issued in the exchange offer. 

Clifford Chance US LLP, on behalf of the Sri Lankan Government, stated that Sri Lanka reached an agreement on 19 September following extensive negotiations involving both international and domestic stakeholders.

SL requests...

Sri Lanka and an ad hoc committee of international bondholders have agreed in principle on the core financial terms for restructuring the nation’s substantial sovereign debt. This agreement also involves Sri Lanka’s local bondholders and marks a critical step towards resolving the country’s financial crisis. 

The debt restructuring process, which has been ongoing for over a year, has received significant input from the International Monetary Fund (IMF) and the Official Creditor Committee (OCC). According to the letter, Sri Lanka has received informal confirmation from IMF staff that the terms of the agreement align with the parameters set by the IMF-supported program. The Government is also expecting formal confirmation soon from both the IMF and the OCC that the restructuring plan meets international standards, particularly the comparability of treatment principle.

The next phase of the debt restructuring process will involve an exchange offer and consent solicitation, expected to launch within the next eight weeks. This timeline is based on precedents from other countries that have undergone sovereign debt restructuring. For instance, Ghana, Suriname, and Zambia saw similar processes take between 50 to 174 days from the agreement in principle to the launch of the exchange offer.

The restructuring plan is critical to Sri Lanka’s broader efforts to regain financial stability and restore investor confidence, which has been significantly impacted by the country’s severe economic crisis. The agreement with bondholders is seen as a positive step towards normalising financial conditions and unlocking further international financial assistance.

However, this crucial development comes at a time of political transition in Sri Lanka. Outgoing President Ranil Wickremesinghe, who played a pivotal role in initiating Sri Lanka’s engagement with the IMF and led the Government through one of the most severe economic crises in the country’s history, is preparing to hand over power to newly elected President Anura Kumara Dissanayake.

Despite facing widespread criticism, Wickremesinghe’s administration managed to lay the groundwork for key reforms, including initiating the debt restructuring process. His leadership saw Sri Lanka secure a critical IMF bailout in 2023, which helped stabilise the rapidly depleting foreign reserves and begin the process of rebuilding investor confidence. The agreement reached with international bondholders marks one of Wickremesinghe’s final acts as President, symbolising his Government’s efforts to steer the nation out of an economic abyss.

In light of these developments – while the road to recovery for Sri Lanka remains challenging – this agreement marks a critical milestone in the nation’s efforts to restore financial stability. As President Anura Kumara Dissanayake takes the reins, the next few months will be pivotal in determining whether Sri Lanka can fully emerge from this crisis. His administration must ensure that the restructuring plan is implemented effectively, while also addressing the socioeconomic needs of the population.