Sri Lanka bondholders raise concerns over debt deal transparency

A group of creditors holding Sri Lanka’s international bonds said on Friday it welcomed the country’s debt restructuring agreement with official creditors, though it said a lack of transparency on deals struck so far was regrettable.

The complaint underscores rising worries that a lack of visibility for private creditors around debt deals between indebted countries and their official creditors could derail or delay those nations’ efforts to finalise restructuring.

Sri Lanka and a group of its creditor nations, including Japan, France and India, on Wednesday reached an agreement in principle on a debt rework of $5.9 billion of outstanding public debt. That followed a deal between the country and the Export-Import Bank of China in October on about $4.2 billion of loans.

But the bondholder group, which represents creditors holding some of the country’s $12 billion of outstanding bonds, said a lack of transparency between public and private creditors was making it more difficult for them to strike a deal with Sri Lanka that was compliant with IMF rules and that provided “fair and equitable” debt treatment.

“The group finds it regrettable that there remains such a significant lack of transparency on the part of official sector creditors despite the group’s efforts so far to act as a constructive counterparty,” the Ad Hoc Group of Bondholders said in an emailed statement.

Last week, objections from official creditors derailed an agreement in principle between Zambia and its bondholders to restructure the African nation’s international debt. The group of Zambia’s bilateral creditors, including France, China and India, said the terms of that proposed deal were not comparable to the relief official creditors offered.

Zambia, as a low-income nation, is reworking its debt under the G-20-designed Common Framework, which makes its process slightly more rigid than Sri Lanka’s. But investors and experts said the issues around lack of information sharing was making it tough for all private lenders to craft debt reworks that public creditors deem comparable to their own offerings.

“It’s possibly more problematic than it was designed to be in terms of actually being able to achieve these debt renegotiations,” Robert Simpson of Pictet Asset Management said.

“We saw it with Zambia, that, you know, once the details are out, one creditor group actually can put a spanner in the works in terms of the entire process.”

The Sri Lanka Ad Hoc Group of bondholders said it remained committed to reaching an agreement with the Sri Lankan authorities as quickly as possible to find a sustainable solution to the country’s international bond debt challenges.

The Ad Hoc Group is advised by Rothschild & Co on the financial side and by White & Case LLP on legal matters.

(Reuters)