• Rs.3.2 Tn worth of T-bonds to be exchanged for longer-term bonds 

About 84% of Treasury Bonds held by superannuation funds have agreed to exchange their rupee bonds for longer-term maturity bonds under the Domestic Debt Optimisation (DDO) programme, a statement from the Ministry of Finance said.

Accordingly, out of the Rs.8.71 trillion worth of eligible Treasury Bonds, holders of Rs. 3.2 trillion (including the holders of the rupee bonds held by superannuation funds) have agreed to exchange their bonds for longer-term maturity bonds.

“The percentage of the aggregate outstanding principal amount of eligible bonds for which valid offers have been accepted by the republic is 37%,” the Finance Ministry statement said.

The statement said that approximately 84% of bonds held by superannuation funds as of the end of June 2023 have agreed to the debt exchange, while “the percentage of the aggregate outstanding principal amount of eligible bonds for which valid offers have been accepted by the republic from superannuation funds necessary to achieve the participation threshold is 100%, subject to the final determination of the Inland Revenue Department.” 

The Finance Ministry said that the success of the invitation to exchange will enable the republic to reduce gross financing needs (GFN) over the next 10 years, thereby contributing to achieving the republic’s GFN target agreed upon in the context of the current International Monetary Fund (IMF)-supported programme. 

Further, the statement said that the republic has determined that the settlement date for the invitation to exchange shall be 14 September 2023, on which the republic will issue new bonds to eligible holders in accordance with the relevant exchange form submitted by each such eligible holder to the extent that the republic has accepted the offers set out therein. 

It also said that the republic will also pay to each eligible holder of accepted offers the interest accrued and unpaid up to (but excluding) the settlement date on such eligible holder’s eligible bonds in Sri Lankan rupees (LKR).

According to the DDO,  the maturity of Treasury Bonds held by superannuation funds that agree to restructure will be extended from 2027 to 2038 with a step-down coupon rate of 12% up until 2025 and 9.0% until maturity with a 14% special tax rate, while superannuation funds not participating will be subjected to a 30% tax rate.

Speaking to Bloomberg, South Asia economist at Standard Chartered Saurav Anand said that although completing the DDO is an important milestone for sure, the Government will also need to reach an agreement with bilateral lenders to complete the first review of the IMF.