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Sri Lanka in Advanced Talks with Creditors on Debt Restructuring Deal

According to sources familiar with the matter, Sri Lanka and a group of creditors are engaged in advanced discussions aimed at restructuring the nation’s debt with bilateral lenders.

The government, along with members of the official creditor committee, including India, Hungary, and the Paris Club, is reportedly exchanging draft versions of the memorandum of understanding (MOU), necessary to finalize the agreement reached in November.

The country’s notes due in November 2025 are currently trading at 59.6 cents on the dollar, while dollar-denominated bonds due in 2030 are trading around 58.6 cents on the dollar. These values continue to recover after unsuccessful negotiations with bondholders back in April.

Sri Lanka must reach agreements with bilateral lenders and bondholders to continue receiving disbursements under its $3 billion bailout from the International Monetary Fund (IMF). The IMF will evaluate these agreements to ensure they provide sufficient relief to meet the nation’s debt sustainability parameters.

With over $10.6 billion owed to bilateral creditors, China represents over 40% of Sri Lanka’s bilateral debt. Additionally, the country needs to restructure $12 billion in debt with overseas private creditors.

As a middle-income country, Sri Lanka is not part of the Group of 20 Common Framework debt initiative. Talks with Chinese official creditors are conducted separately from other negotiations.

The central bank governor and treasury secretary of Sri Lanka did not respond to queries from Bloomberg. However, Cabinet approval was sought for debt restructuring matters, according to Cabinet spokesman Bandula Gunawardana.

The Paris Club has yet to respond to a request for comment.

Sri Lanka’s first round of talks with dollar bondholders in mid-April failed to yield an agreement, with the government expressing reservations about the structure of “macro-linked bonds.” However, the official creditor committee is not requesting a similar structure in its debt rework discussions with the country.

Source: Bloomberg

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