A top Singaporean law firm, Baker McKenzie Wong and Leow, which is a joint law- venture between Baker McKenzie and Wong and Leow LLC, has been appointed as the Common International Legal Counsel to protect the interest of eight Sri Lankan commercial banking sector International Sovereign Bonds (ISB) holders, banking sources told Finance Today. 

According to the sources eight Sri Lankan banks namely Hatton National Bank PLC (HNB), Commercial Bank of Ceylon PLC (ComBank), Seylan Bank PLC (Seylan), National Development Bank (NDB), Nations Trust Bank PLC (NTB), DFCC Bank PLC (DFCC), Sampath Bank PLC (Sampath) and Pan Asia Banking Corporation PLC (PABC) have collectively invested around US$ 1.5 Billion in ISBs.

However, the Bank of Ceylon (BoC), which has over US$ 240 million ISB holding and considering their State-ownership, has decided not to join this endeavour.

In compliance with the proposed debt restructuring plan in Sri Lanka, many of these banks have already made provisions of around 20 per cent for their ISB holdings and are expected to provide further provisions depending on the final debt restructuring proposal. Relevant bank officials told Finance Today that the ISB holders will likely see a 35-40% ‘haircut’ (Debt reduction) on holdings of ISBs, if they participate in the debt restructuring plan.

According to these officials, this plan is very much under consideration although it hasn’t been finalised.

“It is still very much in the open and remains to be seen what the initial reaction of ISB holders will be,” one official said.

More than 30 asset managers holding Sri Lanka’s ISBs announced on 21 May, the formal launch of a creditor group to start debt restructuring talks with the island nation, according to a statement from legal adviser, White and Case LLC.

Amundi Asset Management, Black Rock, HBK Capital Management, Morgan Stanley Investment Management and T. Rowe Price Associates Inc. are among members of the group’s steering committee, which has Rothschild & Co as a financial adviser.

“The Group is broadly representative of Sri Lanka’s bondholder base, both by type of institution and by geography, and holds Bonds across each outstanding series,” the statement added, though it didn’t specify the percentage of bonds it holds on the outstanding US$12.6 billion overseas sovereign debt. Sri Lanka defaulted on foreign debt on 12 April 2022.

Hamilton Reserve, a St Kitts and Nevis based bank, which holds more than US$ 250 million of Sri Lanka’s US$ 1 Billion ISBs due on 25 July 2022 has already filed suit in the Federal Court of New York Southern District, advised by lawyers BleichmarFonti& Auld against Sri Lanka.

Sri Lanka has hired heavyweight financial and legal advisers Lazard and Clifford Chance as it prepares for the difficult task of renegotiating its complex web of creditors, including bilateral lending from Japan, Indiaand China.

The creditor group said it was ready to engage in talks with both Sri Lanka’s authorities and other creditors, adding that the country should “implement a package of meaningful reforms and fiscal adjustments”.

Meanwhile, the Government has recently decided to appoint an external consultant to formally communicate with Sri Lanka’s bondholders about the proposed debt restructuring programme and alsodecided to appoint an external communication consultant to formally communicate internationally about the proposed debt restructuring programme in Sri Lanka.

By Ishara Gamage