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Sri Lanka’s Initial Negotiations with Dollar Bondholders Fail, Triggering Bond Decline

Sri Lanka’s inaugural discussions with dollar bondholders ended without agreement, resulting in a decline in bond prices. Despite this setback, the South Asian nation aims to secure a deal within the upcoming weeks.

According to data compiled by Bloomberg, Sri Lanka’s 7.55% 2030 bond experienced a significant drop of up to 2.8 cents to 53.94 cents on the dollar, marking its most substantial decline since 2022. Additionally, bonds maturing in 2025, 2026, 2027, and 2028 also saw decreases, positioning Sri Lanka as the worst performer in emerging markets for the day.

In an official statement, the government reiterated its concerns regarding the structure of macro-linked bonds proposed by bondholders. These instruments would adjust payouts based on the nation’s economic performance.

The inability to reach an agreement adds pressure on Sri Lankan authorities, who must make strides in debt restructuring to maintain financial support from the International Monetary Fund (IMF).

The government aims to establish “common ground in the next few weeks” before the IMF Executive Board conducts the second review of the program. In March, Sri Lanka obtained initial approval for a $337 million disbursement from the IMF.

As of now, the IMF has not assessed a revised proposal submitted by bondholders on April 3, according to government sources.

Earlier in April, Bloomberg reported that investors and Sri Lankan officials would convene for further discussions during the IMF’s spring meetings in Washington DC this week.

Source – Bloomberg

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