Sri Lanka’s Sovereign Debt Restructuring likely to cost less than $ 6M

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The Governor of the Central Bank of Sri Lanka (CBSL) Dr. Nandalal Weerasinghe stated that the process of restructuring Sri Lanka’s foreign debt is expected to be completed within 12 months.

During the process, the Government intends to enter into a staff-level agreement with the International Monetary Fund (IMF) after successful completion of ongoing technical and policy level by virtual discussions.

In the coming days the two sides will work to reach a final agreement on Sri Lanka’s debt sustainability.

Delivering a special lecture organised by the Sri Lanka Press Council on 23 May, CBSL Governor further stated that the restructuring process will be launched to obtain the consent of at least 75 % of Paris Club bondholders and other creditors, mainly Indian and Chinese parties.

The Government will restructure circa $ 12 billion of international sovereign bonds through its Paris Club membership, in accordance with the advice and actions of its appointed financial and legal advisers.

Sri Lanka has announced a debt standstill on 12 April and stopped the servicing of its US$ 51 billion in external debt.

The governments of India and China have already expressed their support for the restructuring process.

Lazard, the Leading Independent and Non-Conflicted Financial Advisor to Governments globally, based in Paris, France has been selected as the Financial Advisor for the Foreign Debt Restructuring Process to be undertaken by Sri Lanka as a prelude to an IMF programme.

Lazard has an unparalleled track-record in advising governments across the debt cycle and beyond, including in discussions with the IMF. They also advised on more sovereign debt restructurings than any other advisory firm and always on the side of governments. According to them Lazard’s total restructuring deal value since 2005 amounts to over US$500 billion. Terms agreed with Lazard according to the Cabinet announcement, is a total fee of $5.6 million over a period of 12 months to be paid on a quarterly basis.

No less reputable, Clifford Chance, a London-based legal firm ranked among the top 10 legal firms globally with offices in 23 countries, has been selected as the Legal Advisor. Their terms are yet to be revealed.

Both selections were made by two committees comprising senior CBSL and Ministry of Finance officials. The Cabinet approved the final selection on 23 May and was announced by Cabinet spokesman, Minister Bandula Gunawardena.

“This debt restructuring process is rather expensive. It will cost in excess of $ 5 million on behalf of each consultant. We have been able to negotiate their initial fees and bring them to a level where we can agree”, a government spokesman said.

A creditor group of the largest holders of Sri Lanka’s sovereign dollar bonds hired Rothschild & Co as financial adviser and White & Case as legal adviser.

By Ishara Gamage