• Alleges plaintiff Hamilton Reserve Bank not meaningfully engaging with the process but finding fault with Sri Lanka for not already having completed the restructuring process
• Claims HRB is wrong about Sri Lanka’s prospects for success 
• Reveals Sri Lanka is close to finalising agreements with official creditors and expediting matters with private creditors

By Ashwin Hemmathagama in New York

Strongly refuting any unsubstantiated criticism by plaintiff Hamilton Reserve Bank (HRC) and expressing confidence in its ability to restructure external debt, the Defendant, the Democratic Socialist Republic of Sri Lanka, last week moved the ‘Reply Memorandum of Law’ urging the US Southern District of New York to grant an additional five-month stay.

The ‘Defendant’s Motion for a Further Stay of Proceedings’ states that an additional five months are of the utmost importance to the process of implementing restructuring agreements with its creditors by late June/early July 2024 in connection with completing the second review of the IMF-supported program. 

The Paris Club members and the US have supported Sri Lanka’s request for extension. 

(See https://www.ft.lk/front-page/Paris-Club-requests-US-court-to-grant-SL-s-plea-for-stay-order-extension-in-case-filed-by-HRB/44-759403 and https://www.ft.lk/front-page/US-backs-SL-s-request-for-stay-proceedings-extension-in-case-filed-by-HRB/44-759721).

Highlighting the recognition received from the United States Government, the defendant said: “Specifically, the United States reiterates its support for Sri Lanka—a ‘key partner in the Indo-Pacific’—and states that it supports the requested five-month stay, which is ‘reasonable and in accordance with US policy.’ The United States further noted Sri Lanka’s ‘demonstrable progress’ in its debt restructuring efforts, including its continued good faith negotiations with creditors. Even more recently, on 21 March, the IMF and Sri Lanka reached a staff-level agreement on the second program review. After ‘constructive discussions’ in Sri Lanka, IMF Staff released a statement commending Sri Lanka’s ‘good progress’ in meeting program goals and noting that Sri Lanka’s reforms are starting to bear fruit.”

“But further funding is not guaranteed, and the matter is still subject to approval by IMF management and the IMF Executive Board in the period ahead, depending on, among other things, an assessment of whether adequate progress has been made with the debt restructuring to give confidence that the restructuring will be concluded in a timely manner and in line with the program’s debt targets. Therefore, the critical next steps are to finalise the agreements with the official creditors and reach Agreements in Principle with the main external private creditors in line with program parameters in a timely manner,” held the Defendant, trying to highlight the importance of restructuring discussions to continue in the near-term without the disruption of a judgment in favour of the Plaintiff, Hamilton Reserve Bank Ltd. (HRB).

Accusing the plaintiff of not meaningfully engaging with the process but finding fault with Sri Lanka for not already having completed the restructuring process, the defendant said: “HRB contends that Sri Lanka is unlikely to succeed in five months, and so the Court should instead grant a shorter stay of two months. This defies all logic. Two months is not enough time to complete the restructuring process, and a stay of that length will soon have the parties back before the Court re-arguing all these points. In any event, HRB is wrong about Sri Lanka’s prospects for success and misconstrues the relevant case law. Sri Lanka is close to finalising agreements with official creditors, which, given the treatment principal’s comparability, helps facilitate and expedite matters with private creditors. Indeed, for this reason, it is typical for negotiations with official creditors to advance more quickly than those with private creditors. HRB also complained that it lacked information about the restructuring process, hence asked the Court to require a detailed report from Sri Lanka by 16 April 2024. This complaint is more than a little rich, considering that HRB has pointedly refused to participate in the restructuring discussions,” Sri Lanka added.

Sri Lanka also assured that it is willing to submit any necessary information to the Courts and that the HRB’s proposal is unnecessary.

Sri Lanka was sued in the United States by a bondholder after the Government defaulted on its debt for the first time in history while struggling to stop an economic meltdown where HRB, owns over $ 250 million in principal amount of $ 1 billion worth of Sri Lanka’s 5.875% International Sovereign Bonds (ISBs) issued in 2012, filed the lawsuit in June 2022 in a New York federal court seeking full payment of principal and interest. The Bonds matured on 25 July 2022. HRB alleged that due to Sri Lanka’s default, it is owed $ 250.19 million in principle and US $ 7.349 million in accrued interest (before accounting for pre-and post-judgement interest). Sri Lanka in mid-April announced a moratorium on foreign debt repayments, including the Bonds and since then has made no payments on the Bonds. The Government of Sri Lanka filed a motion in September 2022 to dismiss on the grounds that the plaintiff lacks contractual standing.

 

 

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