Unfortunately, after the country’s coupons on two bonds have not been paid within 30-days of grace period, Sri Lanka announced defaults. Sri Lanka became the first sovereign in Asia-Pacific to default this century. In April, Sri Lanka announced that the country would not be able to pay its international bonds valuing $12.5bn. Nandalal Weetasinghe told the press that the country’s position is very clear. They are in pre-emptive default until debt restructuring.
Foreign exchange reserves have been under $50m over the past month. Meanwhile, the country relies much on suppliers of basic necessities such as fuel, food, and medicine. They could take payment in depreciating Sri Lankan rupees and support from the World Bank. President Gotabaya Rajapaksa, last month asked for help from the International Monetary Fund. He added that the country would appoint financial and legal advisers to assist the debt restructuring process.
However, there is no follow up due to the protest on the resignation of Rajapaksa’s brother Mahinda as prime minister. Rajapaksa’s successor, Ranil Wickremesinghe has not appointed the cabinet yet. This involves the cabinet for the finance minister who should choose the advisers to handle debt restructuring. A group of bondholders have appointed Rothschild who previously had advised sovereign debtors.
Earlier this year, they made a group then appointed White & Case as an adviser. They comprise around 20 major institutions including BlackRock and Ashmore as well as other smaller hedge funds. Around 30 firms have interests in the roles for the government, but they said that they received no call from the finance ministry. Meanwhile, the country needs urgent decisions and roles. Even Lee Buchheit, a veteran sovereign debt restructuring lawyer, has helped Sri Lanka. A source close to the situation expects that they expect quick action to encounter the default alarm.
