Ad Hoc Group of Sri Lanka Bondholders Submits Restructuring Proposal - CORRECTED Annexes

LONDON and NEW YORK, Oct. 18, 2023 /PRNewswire/ -- The Ad Hoc Group of Bondholders (the "Group") of the Republic of Sri Lanka ("Sri Lanka") has taken note of the progress Sri Lanka has made with its official sector creditors towards reaching an agreement in principle on a debt treatment within the framework of its IMF Programme.

Consistent with the Group's February 3, 2023 statement of financing assurances, and in line with the objectives which have been expressed by official and private sector participants in the Global Sovereign Debt Roundtable to facilitate more efficient and equitable sovereign debt restructuring processes, the Group remains committed to working with the Sri Lankan authorities as quickly as possible to find a sustainable solution to Sri Lanka's debt challenges as they relate to its international bond debt.

To that end, the Group, acting through its Steering Committee, recently proactively submitted its own restructuring proposal relating to Sri Lanka's outstanding international bonds. The proposal, which provides upfront debt relief, includes a menu of new securities that would be offered to the holders of the existing bonds, including a "Macro-Linked Bond" ("MLB").

The MLB is an innovative new instrument that is designed to be liquid and index-eligible and whose payouts are linked to the evolution of Sri Lanka's gross domestic product. This design seeks to ensure both that the instrument is acceptable to bond market participants and that its cash flows will at all times comply with the Debt Sustainability Analysis targets embedded in Sri Lanka's IMF Programme in a range of future macroeconomic scenarios.

The Group believes that its proposal, including the MLB, will contribute to restoring Sri Lanka's debt sustainability and, at the same time, will command broad support from existing holders of Sri Lanka's international bonds.

The terms of the MLB included in the Group's proposal delivered to the Sri Lankan authorities are attached as Annex I and II hereto.

The Group is advised by Rothschild & Co and White & Case LLP, as financial and legal advisors, respectively.

Questions may be directed to:

Rothschild & Co: rthsrilanka@rothschildandco.com
White & Case LLP: WCSriLankaTeam@whitecase.com

Media inquiries should be directed to Greenbrook Advisory at the addresses below:

Email / Telephone: GBSriLankaBondholderGroup@greenbrookadvisory.com / +44 (0) 20 7952 2000

Annex I: Group Macro-Linked Bond Indicative Proposal (with PDI Treatment)

Terms of the MLBs   

The debt restructuring will be consummated through an exchange offer to all holders of the 11 series of international bonds issued by the Republic of Sri Lanka (the "Republic") (collectively, the "Existing Bonds").

Holders that elect to receive the MLBs in exchange for their Existing Bonds will receive US$800 in principal amount of MLBs for each $1,000 in principal amount of Existing Bonds exchanged (i.e. 20% haircut).

[10] series of MLBs will be issued by the Republic and delivered to holders of Existing Bonds that so elect to receive such MLBs. Each series of MLBs will mature on successive years, with the first series maturing on December 31, 2027 and the final series maturing on December 31, 2036. Alternately the MLBs will be issued in the form of one or more amortizing bonds to ensure adequate liquidity and index eligibility for each new series.

Interest shall be payable on each series of MLBs on a [semi-annual] basis in arrears, on [December 31] and [June 30] of each year, at the following annual rates, subject to the satisfaction of the Adjustment Condition (as defined below):

Coupons will be paid [semi-annually] using a 30/360 day-count. The first coupon will accrue from the issue date of each series of MLBs and will be paid on [June 30], 2024.

Under the terms of the MLBs, if the Adjustment Condition has been met (and the Republic has delivered an officer's certificate to the Trustee certifying the same), then from and including 31 [●], 2028 up to and excluding 31 [●], 2032, the interest rate and/or principal payable on the MLBs shall be decreased as indicated in Annex II. For series maturing between 2033 and 2036, coupons will revert to their original level from 2033 onwards.

The Adjustment Condition shall be met if, when measured on [●] 2028, the Republic's gross domestic product at current prices in Dollars averaged for 2026/2027 (as published in World Economic Outlook) is below U.S.$[98.9] billion. In the event that GDP at current prices in Dollars is not published in the World Economic Outlook, no adjustment shall be applied.

Treatment of Past Due Interest

Any and all accrued and unpaid interest as of the settlement date of the debt restructuring will be compensated as follows (with the precise allocation method to be agreed):

     (a) [40]% paid in cash by the Republic upon settlement of the restructuring; and

     (b) [60]% capitalized into the New PDI Bonds.

The New PDI Bonds will amortize in 4 equal instalments payable annually, commencing from the date falling one year after the issue date of such bonds. The New PDI Bond will mature on December 31, 2027.

The New PDI Bonds will bear interest at a rate of [3]% per annum, payable on a semi-annual basis in arrears on December 31 and June 30 of each year.

Coupons will be paid semi-annually using a 30/360 day-count. The first coupon will accrue from the issue date of the New PDI Bonds and will be paid on June 30, 2024.