Bondholders frustrated by slow progress of talks

ECONOMYNEXT –Some of Sri Lanka’s bondholders who were willing to negotiate a deal before a judgment was delivered in a case filed by holdout investor Hamilton Reserve, are frustrated at what is seen as no progress in discussions, sources familiar with their thinking said.

While Hamilton Reserve has gone to court claiming to represent a 250 million dollar or 25 percent share in a billion-dollar bond with a so-called ‘single series’ collective action clause, a large majority of bondholders who have other bonds, have formed a committee to negotiate with Sri Lanka.

Western governments including the US and France have asked that the court action be stayed until negotiations with other bondholders conclude, but prospects of a deal being concluded by the time the first deadline given by the court has now dimmed. It is not clear yet whether a second extension could be obtained from court.

If Hamilton Reserve gets a court order in their favour, before an in-principle deal to re-structure sovereign bonds is reached, other investors who were willing to negotiate and take a haircut, would not be happy, the sources said.

If Sri Lanka concludes a deal with bondholders who are willing to negotiate, they could also support Sri Lanka to use other legal options including ‘exit consents‘ procedures with a super majority of 66.66 percent to weaken holdout bonds, the sources said.

For such a move, Sri Lankan banks who are also substantial owners of the bonds in question would have to participate.

Sri Lanka has already rejected a proposal by the ad hoc committee formed by private investors to exchange a bond which will be tied to developments in gross domestic product, a so-called state contingent bond, which had substantially high coupons in the initial stages.