Sri Lanka’s debt process nears closure as airline bond awaits final approval
Sri Lanka’s bid to declare its external debt restructuring “99 per cent complete” has come under new scrutiny, as official filings and creditor communications show that the restructuring of the Government-guaranteed SriLankan Airlines (SLA) US$175 million bond remains unresolved despite public claims of imminent closure.
Treasury Secretary Harshana Suriyapperuma, in a statement issued alongside a filing on the Singapore Exchange (SGX), said Sri Lanka was “taking a new step in the full normalisation of our relations with our external partners and in our efforts to restore our public finances.” He added: “Thanks to this agreement, 99 per cent of our external debt will now be settled.”
But the SGX filing itself the only legally recognised disclosure makes clear that the deal is not finalised. The Government and SLA note holders have reached only an “agreement-in-principle”, with implementation dependent on multiple layers of approval.
The filing explicitly states: “The terms of the in-principle agreement were communicated to Sri Lanka’s Official Creditor Committee and the International Monetary Fund to ensure compliance with Sri Lanka’s long-term debt sustainability. Upon their confirmation, the Parties expect to be able to implement the transaction by the end of the year.”
The proposed restructure covers SLA’s defaulted $175 million, 7 per cent guaranteed bond, which fell into arrears following the 2022 debt suspension. Under the terms disclosed to investors, SLA and the Government plan to allocate $60 million for a cash tender at 85 per cent of each note holder’s total claim.
The SGX filing emphasises: “Note holders who voluntarily exchange their Notes will receive $ 0.85 in principal amount of the Government bonds for every $1 of their total claim amount. Non-consenting note holders will be mandatorily exchanged at $0.75 per $1 of claim.”
The Government bonds to be issued via a tap of the 2028 $1.20 billion 4.00 per cent bond will amortise in three tranches April 2026 (27.4 per cent), April 2027 (27.4 per cent), and April 2028 (45.2 per cent).
However, the transaction can proceed only if 75 per cent of note holders vote in favour at a formal meeting. The SGX disclosure notes: “The extraordinary resolution requires note holders holding at least 75% in principal amount of the Notes present and voting to vote in favour.”
SLA Chairman Sarath Ganegoda expressed cautious optimism, stating: “We are very pleased to have finally reached an agreement-in-principle… allowing us to now look to the future of our company with greater optimism.”
But rating agencies have not lifted Sri Lanka from default. S&P Global, in its most recent commentary, stressed: “Sri Lanka remains in Selective Default as the SriLankan Airlines guaranteed bond remains unresolved.”
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