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

Wednesday, 18 October 2023 03:07 - - {{hitsCtrl.values.hits}}

Bloomberg: A proposed restructuring of Sri Lanka’s debt to dollar bondholders in the shape of new “macro-linked bonds” looks “extremely generous” to investors, according to analysts at Citibank.

Sri Lanka dollar bonds look attractive, and fair value for macro-linked could be in the high 50s to mid- 60-cents on the dollar if the proposal is accepted, Johanna Chua and Donato Guarino, strategists at Citi wrote in a note

Sri Lanka’s 7.55% 2030 bond advanced to 47.4 cents on the dollar Monday, the highest since March last year, before the nation’s historic default, according to indicative data compiled by Bloomberg Macro-linked bonds are “a new instrument whose payouts are linked to the evolution of Sri Lanka USD nominal GDP. The goal of this floating cash-flows structure is to comply with the Debt Sustainability Analysis targets embedded in Sri Lanka’s IMF Program”

Citi estimates a lower probability that the smaller payout for macro-linked bonds — that would be triggered in a lower GDP growth scenario — will be triggered

“While we think terms being proposed here are still subject to renegotiation by the government, the provision of this private creditor bondholder restructuring proposal, alongside news of a preliminary agreement with China Exim Bank on the treatment of $ 4.2 b of outstanding debt should eventually pave the way for an IMF Executive Board approval of the first program review, and $ 334 m in tranche disbursal by November,” Citi said.

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