The Democratic Socialist Republic of Sri Lanka would be the first sovereign in Asia to default since Pakistan in 1999. Previously, the country had announced that it would stop servicing its foreign debt from early April. In addition, it looks for International Monetary Fund support involving liabilities restructuring.
According to Refinitiv data, Sri Lanka has a $1bn or 5.875% bond that matures on July 25. It slides from 51 cents in the dollar to 45. Many had expected the country not to pay a $500m maturity in January. But the country did so after securing bilateral loans from its neighboring countries. Coupons on a $1.25bn or 5.7% bond maturing in April 2023 plus a $1.25bn or 6.75% maturing in April 2028 are due on April 18. IFR Asia records the data.
Those bonds were trading at approximately 39 cents in the dollar. It is for the confirmation coming through that the payments on the $12.6bn of foreign bonds are on delay. S&P said that they expect the government to miss the payment of those coupons. Therefore, it could lower the foreign currency sovereign ratings on Sri Lanka to CC. Actually, it is the practice of virtual certainty of a default on some affected obligations.
Fitch rating, on the same day, downgraded the country from CC to C.
Few days before the default decision, the ministry of finance has sent out proposals to hire financial and legal advisers. The submission deadline was April 16. Then, the appointments should be at least on April 18-24 for IMF and World Bank spring meetings in Washington.
The restructuring officer commented that the country demands for financial advisers during defaults. It was too late. A bondholder on the other hand, said that the capitulation was for the best. He said that the government viewed defaulting as equivalent to economic collapse. So, the not restructuring alternative has already played out. It is already tough for the country itself.
