Sri Lanka has reached an agreement in principle with bondholders to restructure approximately $12.6 billion in bonds, as the country faces elections that have unsettled investors. The government conducted limited discussions with nine members of the steering committee of the ad-hoc group of bondholders between September 12 and 18, according to a statement released on Thursday.
As part of the restructuring, the parties have agreed to introduce “governance-linked bond features.” These clauses would potentially reduce Sri Lanka’s repayment obligations if the country achieves certain governance and anti-corruption targets.
This deal may provide a boost to Sri Lanka’s dollar bonds, which have underperformed compared to other emerging markets this year. Concerns have been heightened due to the elections scheduled for September 21, and how the outcome might affect the nation’s $3 billion International Monetary Fund (IMF) bailout program. Several candidates in the upcoming election have expressed intentions to renegotiate the terms of the IMF loan.
Previously, the Sri Lankan government had reached debt restructuring agreements with official creditors, including China, India, and the Paris Club, as well as with holders of its local debt.
