Sri Lanka’s international bonds extended their rally on Monday following a proposal last week by private creditors to overhaul the country’s $ 12.5 billion marketable debt pile with the help of a newly designed instrument, a Reuters report filed out of London said.

Quoting Tradeweb data, it said dollar-denominated bonds issued by the island nation rose around 2.5 cents across the curve with most of the issues bid between 48.8-50.5 cents in the dollar.

A group of private holders of the bonds proposed on Friday to the Government the issuance of 10 bonds linked to the country’s macroeconomic health – so-called Macro Linked Bonds (MLBs) – that will mature between 2027 and 2036 and would see holders take a 20% haircut on the principal.

It would be the first time MLBs are used in a debt restructuring, Reuters said.

It quoted Citi strategist Donato Guarino as saying in a note to clients on Monday that the proposal looked “extremely generous”, calculating the bonds’ fair value at the high 50s to mid-60s cents in the dollar.

“This should further support the current bonds that look attractive, in our view,” said Guarino.

Reuters also said Barclays analysts in a note on Friday also said the usage of MLBs had raised their recovery estimates to as high as 55-60 cents in the dollar while the bank upped its rating on the debt to an “overweight” position.

“Additional upside would be possible if there were a relatively small (up to 5y) maturity extension,” Reuters quoted Barclays’ Avanti Save as saying. 

Still, analysts noted that it was early days in the exchange with bondholders and the shape of a final deal remained unclear. “We caution that this is only a proposal, and given what seems to be generous terms for the bondholders, is still subject to renegotiation by the Government,” said Citi’s Guarino according to Reuters.

Sri Lanka macro-linked Bond proposal generous to investors: Citi