SriLankan Airlines says paid interest on US$ 175 million bond after sovereign debt default

National carrier SriLankan Airlines yesterday (July 26) said it paid the interest in full on its US$ 175 million bond due in 2024 using company funds.

“The interest was paid in full within the applicable grace period using company funds,” the airline said in a brief statement.

The bond with 7 percent coupon and listed in Singapore stock exchange is guaranteed by the Sri Lankan government.

However, analysts and economists yesterday pointed out that the bond payment made by SriLankan Airlines could complicate the country’s debt restructuring process.

Sri Lanka halted most of its foreign loan repayments on April 12 until its debt is restructured.

While acknowledging the authority of the board of the SriLankan Airlines to decide to pay the interest payment on the bond, Chayu Damsinghe of Frontier Research said the move could complicate Sri Lanka’s debt restructuring process. “…the bond is rated to be in default proceedings not explicitly defaulted on. SLA has the authority to pay this bond, but the question is why do so given the consequences to the rest of SL’s debt process and whether it was done disregarding this,” Damsinghe tweeted.

“Another serious issue is now how Sri Lanka can negotiate in good faith with our creditors, if the government/government-guaranteed debt is being paid in full to some creditors, but we’re negotiating a restructure for others,” he further tweeted.  Meanwhile, Sri Lanka defaulted a US$ 1 billion international sovereign bond which matured on July 25. It is over the same bond that Hamilton Reserves Bank has taken Sri Lanka to courts in New York.

However, Sri Lanka will be given a 30-day grace period to settle the bond, and until that period ends, the bond will be in the ‘restricted default’ category.  Prior to that, Sri Lanka defaulted an interest payment of US$ 78 million of a sovereign bond on May 19 after a one month grace period.