• Citibank strategist says SL dollar bonds look attractive and of fair value

A proposed restructuring of Sri Lanka’s dollar debt by private bondholders in the shape of new macro-linked bonds looks extremely generous to investors, Citibank said. 

Speaking to Bloomberg, Johanna Chua and Donato Guarina, strategists at Citibank said that Sri Lanka dollar bonds look attractive and fair value for macro linked could be in the high-50s to mid-60 cents on the dollar if the proposal is accepted.

According to indicative data compiled by Bloomberg, Sri Lanka’s 7.55% 2030 bond advanced to 47.4 cents on the dollar Monday (16), the highest since March 2022 before the country defaulted.

Moreover, Citibank estimates a lower probability that the smaller payout for macro-linked bonds would be triggered in a lower GDP-growth scenario.

“While the terms proposed are still subject to renegotiation by the Govt., the provision of this ISB holder proposal, alongside the preliminary agreement with China Exim Bank, should eventually pave the way for an IMF Executive Board approval of the first program review, and $ 334 million in tranche disbursal by November” Bloomberg report said.

Private creditors are seeking a separate deal. An ad hoc group of bondholders, organised by advisers including Rothschild & Co., recently submitted a proposal to Sri Lanka that includes taking a 20% haircut and issuance of new debt, including a so-called macro-linked bond.

Macro-linked bonds are “a new instrument” whose payouts are linked to the evolution of Sri Lanka’s USD nominal GDP. The goal of this floating cash flow structure is to comply with the debt sustainability analysis targets embedded in Sri Lanka’s IMF programme. 

IMF's Asia and Pacific Department  Director Krishna Srinivasan said last week at the IMF-World Bank annual meetings that Sri Lanka’s authorities can negotiate any proposals private creditors make such as the proposed GDP-linked bonds, as the IMF does not get involved in debt restructuring talks.