REG - Sri Lanka (Republic) - Conclusion of Initial Restricted Discussions

Rothschild & Co SCAAnnouncement

16/04/2024 08:45

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RNS Number : 7127K  Sri Lanka (G.D.S. Republic of)  16 April 2024

THIS ANNOUNCEMENT CONTAINS INFORMATION THAT QUALIFIES, OR MAY QUALIFY, AS
INSIDE INFORMATION WITHIN THE MEANING OF ARTICLE 7(1) OF THE MARKET ABUSE
REGULATION (EU) 596/2014 AS IT FORMS PART OF DOMESTIC LAW IN THE UNITED
KINGDOM BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("UK MAR").

NOT FOR DISTRIBUTION IN ANY JURISDICTION IN WHICH SUCH DISTRIBUTION WOULD BE
PROHIBITED BY APPLICABLE LAW. THIS ANNOUNCEMENT SHALL NOT CONSTITUTE AN OFFER
TO PURCHASE OR A SOLICITATION OF AN OFFER TO SELL ANY OF THE SECURITIES
DESCRIBED HEREIN, NOR SHALL THERE BE ANY OFFER OR SALE OF SUCH SECURITIES IN
ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL.

     ANNOUNCEMENT BY THE GOVERNMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI
     LANKA IN RELATION TO THE FOLLOWING SERIES OF BONDS ISSUED BY THE ISSUER:
     U.S.$1,000,000,000 6.85% BONDS DUE 2024
     Rule 144A ISINs: US85227SAY28; Reg S ISIN: USY8137FAN88
     U.S.$500,000,000 6.35% BONDS DUE 2024
     Rule 144A ISINs: US85227SBA33; Reg S ISIN: USY8137FAQ10
     U.S $1,400,000,000 7.85% BONDS DUE 2029
     Rule 144A ISINs: US85227SAZ92; Reg S ISIN: USY8137FAP37
     U.S $1,500,000,000 7.55% BONDS DUE 2030
     Rule 144A ISINs: US85227SBB16; Reg S ISIN: USY8137FAR92
     (the "Bonds")

SRI LANKA ANNOUNCES CONCLUSION OF INITIAL RESTRICTED DISCUSSIONS WITH MEMBERS
OF THE AD HOC GROUP OF BONDHOLDERS

Colombo, Sri Lanka, 16 April 2024  - The Government of the Democratic
Socialist Republic of Sri Lanka ("Sri Lanka") announces today that it has held
restricted discussions over the past three weeks (the "Restricted Period")
with nine members of the steering committee who agreed to take part in the
restricted discussions (the "Steering Committee") of the Ad Hoc Group of
Bondholders (the "Group", and together with Sri Lanka, the "Parties") of its
International Sovereign Bonds ("ISBs"). Sri Lanka was joined by its legal and
financial advisors, Clifford Chance and Lazard, respectively, and the
restricted members of the Steering Committee were joined by the Group's legal
and financial advisors, White & Case and Rothschild & Co,
respectively. The Steering Committee as a whole comprises ten of the largest
members of the Group, with the Group controlling approximately 50% of the
aggregate outstanding amount of ISBs. Despite constructive discussions, the
Parties did not come to an agreement on restructuring terms. The Steering
Committee did not agree to an extension of the restricted discussions upon
expiration of the current Restricted Period.

During the Restricted Period, Sri Lanka, the Steering Committee and its
advisors met during a two-day working session in London on 27 and 28 March
2024 (the "Meetings") to discuss the Group's latest debt treatment proposal,
sent to Sri Lanka's advisors on 11 March 2024 (the "Group's March Proposal").
Prior to the meetings, on 25 March 2024, Sri Lanka had also sent, through its
advisors, its own debt treatment proposal to the Group's advisors ("Sri
Lanka's Proposal") which was rejected by the Steering Committee. Both the
Group's March Proposal and Sri Lanka's Proposal are attached in the Annex
hereto.

Prior to the Meetings, staff at the International Monetary Fund (the "IMF")
provided their preliminary and informal assessment of both Parties' proposals'
consistency with Sri Lanka's IMF-supported program (the "IMF-Supported
Program") parameters and debt sustainability objectives. The IMF staff
assessment included an analysis of the sum total of restructuring proposals
(for official and private creditors) based on agreed deals with certain
creditors and the Sri Lankan authorities' restructuring scenario for other
creditors. On that basis, the IMF staff concluded that the debt treatment
scenario included in Sri Lanka's Proposal was consistent with the
IMF-Supported Program debt sustainability targets, while the scenario included
in the Group's March Proposal was not. IMF staff noted that these were
preliminary assessments and the IMF staff would provide final assessments only
after the Parties had reached a tentative agreement in principle.

During the Meetings, it was agreed that the primary basis for the discussions
would be the Group's March Proposal. Sri Lanka articulated the main
reservations it had in relation to the Group's proposed Macro-Linked Bond
("MLB") - while members of the Steering Committee articulated the reasons why
they believed the terms of their MLB proposal were fair and reasonable.

The Steering Committee also suggested the possible introduction of a
Governance Linked Bond, which Sri Lanka said it would consider subject to
being provided with more details of this proposal. Such details on the
possible structure of a Governance Linked Bond were subsequently shared with
Sri Lanka's advisors on 3 April 2024.

The discussions narrowed down to four features of the MLB:

1.     The baseline parameters of the instruments proposed by the Group
were calibrated by reference to the Group's "alternative baseline", rather
than Sri Lanka's IMF-Supported Program baseline.

 

2.     The balance of risks between Sri Lanka and holders of its ISBs -
While the Group had already updated its original MLB structure to include a
scenario where Sri Lanka might underperform IMF-Supported Program GDP
projections, Sri Lanka invited the Group to consider a structure that would
provide greater protections to Sri Lanka in such a scenario.

 

3.     The test for triggering upward/downward adjustments in the MLB.

 

4.     The share of additional value in an upward adjustment scenario -
Sri Lanka invited the Group to consider lower bondholder allocation in the
scenario in which the country outperformed IMF-Supported Program GDP
projections and satisfied the upward adjustment test in the MLB.

 

Over the course of the Meetings, the Parties came closer to a meeting of minds
on Items 1 and 2, with the Steering Committee willing to agree to Sri Lanka's
request for amendments in relation to these two key structural aspects,
subject to Sri Lanka (i) agreeing to a consent fee (with the Steering
Committee proposing a fee of 1.8% of the outstanding principal amount of the
ISBs) with a view to offsetting the Group's perceived reduction of the market
value of their proposal as result of such amendments and (ii) agreeing with
the Group's proposal on Items 3 and 4.

Following the Meetings, on 3 April 2024, the Group shared an updated version
of its debt treatment proposal (the "Group's April Proposal"), which addressed
Items 1 and 2 in the manner described above. The Group's April Proposal is
also attached in the Annex hereto. The Group's April Proposal is yet to be
assessed by the IMF staff.

While recognising the efforts made by the Group in accommodating some of its
key observations, Sri Lanka reiterated its reservations regarding the
structure of the MLB trigger test and the cashflows associated with the
baseline and upside scenarios (Items 3 and 4).

Sri Lanka would like to thank the Steering Committee, the Group and their
advisors for their constructive stance, and looks forward to continued
engagement in good faith as soon as feasible, with a view to reaching common
ground in the next few weeks, ahead of the second review of the IMF-Supported
Program being considered by the IMF Executive Board.

This announcement is made by Sri Lanka and constitutes a public disclosure of
inside information under Regulation (EU) 596/2014 as it forms part of domestic
law of the United Kingdom by virtue of the European Union (Withdrawal) Act
2018 ("EUWA") ("UK MAR"). For the purposes of UK MAR and Article 2 of
Commission Implementing Regulation (EU) 2016/1055 as it forms part of domestic
law in the United Kingdom by virtue of the EUWA, this  announcement is made
by R M P Rathnayake, Deputy Secretary to the Treasury of Sri Lanka.

ANNEX

1.             Group's March Proposal

 

2.             Sri Lanka's Proposal

 

3.             Group's April Proposal

 

4.             Governance Linked Bond

***

 

This announcement does not constitute an offer of securities for sale in the
United States. This announcement does not constitute an offer of securities
for sale, or the solicitation of an offer to buy any securities, in any state
or other jurisdiction in which any offer, solicitation or sale (if made) would
be unlawful. Any person considering making an investment decision relating to
any securities must inform itself independently based solely on an offering
memorandum to be provided to eligible investors in the future in connection
with any such securities before taking any such investment decision.

No offer of any kind is being made to any beneficial owner of securities
located in a jurisdiction where the offer would not be permitted by law.

 

Forward-Looking Statements

 

All statements in this announcement, other than statements of historical fact,
are forward-looking statements. These statements are based on expectations and
assumptions on the date of this announcement and are subject to numerous risks
and uncertainties which could cause actual results to differ materially from
those described in the forward-looking statements. Risks and uncertainties
include, but are not limited to, market conditions and factors over which Sri
Lanka has no control. Sri Lanka assumes no obligation to update these
forward-looking statements and does not intend to do so, unless otherwise
required by law.

Click on or paste the following link on your web browser to view the PDF
version of the Annex.

http://www.rns-pdf.londonstockexchange.com/rns/7127K_1-2024-4-15.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/7127K_1-2024-4-15.pdf)

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