• Macro-linked bonds agreement aims for $ 2-4.6 b debt reduction
• Deal includes upfront debt relief, reduced interest rates, and extended maturities

Sri Lanka’s agreement in principle on the macro linked bonds (MLB) with the bondholders will have a debt stock reduction between $ 2 billion to $ 4.6 billion based on the economic performance of Sri Lanka, the Ministry of Finance said.

Clarifying the frequently asked questions (FAQs) on Sri Lanka’s international sovereign bond (ISB) restructuring, the Ministry of Finance said that under the agreements in principle reached with the Ad Hoc Group of Bondholders (AHGB) and the Local Consortium of Sri Lanka (LCSL), it is expected that Sri Lanka will benefit from an upfront debt stock reduction of approximately $ 3.2 billion.

It said that this debt relief could increase up to a maximum of $ 4.6 billion in case of an economic downturn or decrease to a minimum of $ 2 billion if Sri Lanka’s economic performance exceeds debt sustainability analysis (DSA) expectations by a significant margin.

In addition, it said that under the baseline debt treatment scenario, Sri Lanka’s debt service payments over the IMF programme period will be reduced by approximately $ 9.5 billion, the average maturity of the bonds extended by over five years and interest rates reduced from 6.4% to 4.4% on average.

“Under the agreements, holders of the ISBs will be consenting to a present value concession of 40.3% in the baseline scenario, calculated with a discount factor of 11%,” the Finance Ministry said, adding that in respect of the highest MLB threshold (Resulting from the most significant economic outperformance), bondholders present value concession relative to the JWF has increased from 27% to 33%.

“These agreements will help Sri Lanka to achieve sovereign debt sustainability and hasten the country’s economic recovery and return to international capital markets,” the statement said.

Moreover, the Finance Ministry said that it is also a condition for Sri Lanka to unlock additional disbursements from the International Monetary Fund (IMF) under the IMF-supported programme and other development partners in the next few years.