• 1. Recovery value likely above current prices, regardless of election outcome.
• 2. Strategists expect final restructuring deal to yield mid-50s to early-60s recovery.

Citigroup sees upside potential in Sri Lanka’s dollar bonds regardless of the election outcome, expecting the final recovery value to be above current prices.

According to Bloomberg, Citigroup expects Sri Lankan dollar bond prices to have a recovery value between mid-50s to early-60s after the final restructuring deal.

“Current bond price volatility represents a risk-adding opportunity (Especially if bonds fall again ahead of elections), given that the final recovery value is unlikely to be lower than current price,” strategists Baqar Zaidi, Donato Guarino and Johanna Chua told Bloomberg.

Bonds due in 2030 are trading at 52 cents on the dollar, according to indicative pricing data by Bloomberg.

Bloomberg also states that the market is pricing the National People’s Power, led by Anura Kumara Dissanayake, as frontrunner in the 21 September vote, but not a certain victory.

It said that an NPP government could renegotiate key elements of Sri Lanka’s debt deal and that any renegotiation would likely pose a delay, but not a cancellation of talks.

“While bonds could drop towards recent lows (possibly below-50) initially after a possible NPP victory, we think Sri Lanka would ultimately offer bondholders recovery values no lower than Ghana (mid-50s),” Bloomberg said.