Sri Lanka’s debt restructuring has not hit a snag even though one of its sovereign bondholders, Hamilton Reserve Bank Ltd., filed a lawsuit on Tuesday in a New York federal court seeking their full payment and challenging the debt restructuring. The entity, with more than US$ 250 million is seeking full payment of principal and [...]

Business Times

SL debt structure won’t hit snags due to latest lawsuit

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Sri Lanka’s debt restructuring has not hit a snag even though one of its sovereign bondholders, Hamilton Reserve Bank Ltd., filed a lawsuit on Tuesday in a New York federal court seeking their full payment and challenging the debt restructuring.

The entity, with more than US$ 250 million is seeking full payment of principal and interest.

Sri Lanka’s creditors in the international bond market are threefold. The Paris Club creditors are mainly developing countries holding the bonds, the non-Paris club creditors are those countries like India and China while the third, is the international sovereign bondholders such as the Hamilton Reserve Bank. “When negotiating the debt restructure with creditors, Sri Lanka will start with the most generous creditors such as the Paris Club creditors,” Dr. Priyanga Dunusinghe, Senior Lecturer Department of Economics, University of Colombo told the Business Times. This is the norm, he said noting that then the country will move on to negotiate with the non-Paris club bondholders and finally the International Sovereign Bond ((ISB) holders such as the Hamilton Reserve Bank.

More than 30 asset managers, mostly US-based holding Sri Lanka’s international bonds announced on Tuesday the formal launch of a creditor group to start debt restructuring negotiations, with financial and legal advisers Lazard and Clifford Chance representing Sri Lanka.

In a statement from legal adviser White & Case LLC, the group said it was ready to engage in talks with both Sri Lanka’s authorities and other creditors, adding that the country should “implement a package of meaningful reforms and fiscal adjustments”.

Dr. Dunusinghe pointed out that one group of creditors banding together and agreeing to restructure debt while one is suing the country in a US court is a strategic move by ISB holders. “These creditors are familiar with situations like the ones we have here. They have dealt with lawsuits like this before. This is a strategic move by them, and our legal advisors may have been expecting such a lawsuit.” A senior Sri Lankan banker agreed to say that in such scenarios lawsuits like the Hamilton Reserve Bank’s one is expected. “Some creditors will try such things. The legal advisors are extremely familiar with them. There will not be an impact on the country’s debt restructuring,” he added.

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