Category: News

Sri Lanka’s state-run airport management firm has invited proposals from reputed companies to study the feasibility of expanding the Jaffna International Airport (JIA) but not from countries adjacent to Colombo’s Flight Information Region (FIR)—India, the Maldives, Indonesia, and Australia—citing a conflict of interest.

Separately, Airport and Aviation Services of Sri Lanka Ltd. (AASL) has extended till March 18, 2025, the deadline to receive bids from Japanese companies for

the construction and completion of the Bandaranaike International Airport (BIA) Development Project Phase II Stage 2-Package A1.

The Japan International Cooperation Agency (JICA)-funded project includes building and completing the

main terminal building, two new piers, and associated works such as an elevated roadway. The original deadline expired on Tuesday.

The deadline for the Jaffna International Airport project closes on January 29, 2025. Bids are called from airport consultancy firms or joint ventures that have carried out (on time) at least one feasibility study within the immediate past ten years for an international airport development project for which work has been completed or is ongoing.

The advertisement says the consultancy firm shall not be based in or be of origin of “countries that share adjacent to Colombo FIR in order to avoid a conflict of interest”.

Meanwhile, the BIA expansion project—with an anticipated construction period of 30 months—was beset by problems but is now back on track, particularly after Sri Lanka concluded debt restructuring agreements.

Under the original contract, won by Japan’s Taisei Corporation, work started in December 2020 and was scheduled to be completed by December 2023. But the project was terminated in December 2022 “due to economic conditions that prevailed in the country” that year, the AASL states. (JICA froze funding to all of its Sri Lankan projects).

At the time of termination, progress was at just six percent. The re-advertised invitation is for the completion of the balance scope with materials and equipment already purchased by Taisei, also offered to the entity that wins the contract.

While Sri Lanka has an existing JICA loan to fund part of the cost of construction, the government has officially requested additional funding from the agency. This is under consideration by the Japanese government and JICA, AASL says.

Standard and Poor’s (S&P) said it was keeping Sri Lanka’s sovereign rating at selective default because a defaulted SriLankan Airlines bond has not yet been restructured, but has rated newly issued restructured bonds at CCC+.

The 175 million dollar SriLankan Airlines bond is guaranteed by the government and remains in default.

“We could raise our long-term foreign currency sovereign credit rating once Sri Lanka completes the restructuring of its remaining foreign currency-denominated commercial debt, including the government-guaranteed bond that SriLankan Airlines issued,” S&P Global Rating said in a statement.

“The rating would reflect Sri Lanka’s creditworthiness post-restructuring.”

However, the new bond given in exchange for defaulted sovereign bonds have have been rated CCC+.

Both Fitch and Moody’s upgraded the sovereign rating despite the outstanding SriLankan Airlines bond.

The local currency rating was also raised to CCC+

The full statement is reproduced below.

Sri Lanka ‘SD/SD’ Foreign Currency And ‘CCC+/C’ Local Currency Ratings Affirmed; New Issues Rated ‘CCC+’

Overview

• Sri Lanka has completed the exchange of most of its US$12.55 billion existing international sovereign bonds (ISB) for a combination of new notes.

• The government appears to be still working on restructuring a US$175 million bond issued by SriLankan Airlines that it guarantees, which remains in default.

• We affirmed our ‘SD/SD’ (selective default) foreign currency and ‘CCC+/C’ local currency sovereign credit ratings on Sri Lanka. At the same time, we assigned our ‘CCC+’ foreign currency issue ratings to some of the newly issued series of Sri Lanka’s sovereign bonds, including past due interest (PDI) bonds, governance-linked bonds, and U.S. dollar step-up bonds.

• The outlook on the ‘CCC+’ long-term local currency rating is stable.

Rating Action

On Dec. 27, 2024, S&P Global Ratings affirmed its ‘SD/SD’ (selective default) long- and short-term foreign currency and ‘CCC+/C’ long- and short-term local currency sovereign credit ratings on Sri Lanka. The outlook on the long-term local currency rating is stable.

We also revised upward our transfer and convertibility assessment on Sri Lanka to ‘CCC+’ from ‘CCC’ previously.

At the same time, we assigned our ‘CCC+’ issue ratings to three categories of Sri Lanka’s post-restructuring new notes:

• Amortizing Governance-linked bonds maturing in 2035;

• Amortizing U.S. dollar step-up bonds maturing in 2038; and

• Amortizing PDI bonds maturing in 2030.

Outlook

Our long-term foreign currency rating on Sri Lanka is ‘SD’. We do not assign outlooks to ‘SD’ ratings because they express a condition and not a forward-looking opinion of default probability.

The stable outlook on the long-term local currency rating reflects the balance of improvements to Sri Lanka’s debt profile achieved through its domestic and external restructuring exercises against continued risk to the government’s fiscal sustainability from ongoing economic, external, and fiscal pressures over the next 12 months.

Downside scenario

We could lower the long-term local currency rating on Sri Lanka if there are indications of a further restructuring of obligations denominated in the Sri Lankan rupee to commercial creditors.

Developments that could precede these indications include a rapid rise in inflation, a further rise in the government’s interest burden, or a significantly worse fiscal performance by the government leading to local currency funding pressures.

Upside scenario

We could raise the long-term local currency rating on Sri Lanka if we perceive that the sustainability of the government’s large local currency debt stock has improved further.

This could be the case if, for example, the government’s fiscal metrics and the performance of the economy improve much more quickly than we expect.

We could raise our long-term foreign currency sovereign credit rating once Sri Lanka completes the restructuring of its remaining foreign currency-denominated commercial debt, including the government-guaranteed bond that SriLankan Airlines issued. The rating would reflect Sri Lanka’s creditworthiness post-restructuring.

Our post-restructuring ratings tend to be in the ‘CCC’ or low ‘B’ categories, depending on the sovereign’s new debt structure and capacity to support its debt.

Rationale

We assigned our ‘CCC+’ foreign currency issue ratings to three of Sri Lanka’s categories of new notes following the completion of the government’s distressed debt exchange on its ISBs.

The exchange offer received the consent of holders of more than 97% of the outstanding ISBs, sufficiently exceeding the required thresholds set out in the exchange offer to complete the transaction.

The restructuring of Sri Lanka’s US$12.5 billion ISBs plus capitalized interest aims to ease external debt-service pressure and restore public debt sustainability as part of the country’s ongoing extended funding facility arrangement with the IMF.

Following the bond exchange, Sri Lanka will achieve under the baseline scenario approximately US$9.5 billion in debt service payment reduction over the four-year IMF program period, a 31% reduction in the coupon rate of its bonds, and an extension of the average maturity profile of more than five years, according to estimates from the Sri Lankan Treasury.

Bondholders representing 97.8% of the total ISB value outstanding agreed to the exchange offer, which grants them new notes in various structures under global or local options.

The global option includes: (1) a capitalized interest bond with a coupon of 4.0% (PDI bond), (2) macro-linked bonds with contingencies for nominal and real GDP performance (MLBs); and (3) a governance-linked bond (GLB) with a coupon that will step up in 2027 and again in 2032.

The GLBs are subject to two interest step-ups in 2027 and 2032. The application of a potential step-down margin in 2028 will hinge on two government key performance indicators, including the government’s 2026-2027 revenue performance and publication of a fiscal strategy statement in accordance with certain criteria.

If both are achieved, the coupon will be lowered by 75bps following timely certification of the government having met the relevant KPIs. We consider the KPIs to be related to improvements in Sri Lanka’s creditworthiness.

The local option includes a U.S. dollar step-up bond with a smaller nominal haircut of 10% and a lower coupon starting from 1.0%, in addition to two other bonds.

The coupon gradually rises over time to a terminal rate of 3.5% in 2036-2038. The bond contains an alternative currency event clause allowing Sri Lanka to make coupon and principal payments in the Sri Lankan rupee equivalent if it is unable or impracticable to make payment in the U.S. dollar.

As per our rating definitions, our ‘CCC+’ local currency rating suggests the creditworthiness of an issuer is vulnerable and dependent upon favorable financial and economic conditions, but the issuer does not face a near-term payment crisis (see “S&P Global Ratings Definitions,” published on RatingsDirect, Dec. 2, 2024).

We affirmed our long- term and short-term ‘SD’ foreign currency sovereign credit ratings because Sri Lanka’s government appears to be still in the early stages of restructuring a US$175 million bond issued by SriLankan Airlines that it guarantees.

The JVP-led NPP government has decided against granting service extensions to current commanders of the Army, Navy and Air Force, as well as any other officer scheduled to retire on 31 Dec., 2024, according to sources.

Army Commander Lt. Gen. Vikum Liyanage and Navy Commander Vice Admiral Priyantha Perera are on their second extensions, whereas Air Force Commander Air Marshal Udeni Rajapaksa is on his first service extension. There have never been a previous instance of the Army, Navy and Air Force Commanders retiring simultaneously.

Among other officers expected to retire at the end of this year is Maj. Gen. Ruwan Kulatunga, Chief of National Intelligence (CNI). Kulatunga received the appointment in the second week of June, 2019, in the wake of the Easter Sunday carnage. Kulatunga succeeded retired DIG Sisira Mendis, one of those faulted by the Supreme Court for the failure to thwart the National Thowheed Jamaat (NTJ) terror attacks.

Sources said that Deputy Defence Minister Maj. Gen. (retd.) Aruna Jayasekera (NPP National List) had explained the government’s position with regard to service extensions to relevant officers. Unlike in the previous years, the newly retired officers were unlikely to be considered for diplomatic appointments, sources said. Ex-military chiefs who had been heading our diplomatic missions at the time of the change of government were recalled. Among the recalled were three former Navy Commanders, Admirals Jayanath Colombage (Indonesia), Ravi Wijegunaratne (Pakistan) and Nilantha Ulugetenne (Cuba). The NPP government also recalled Air Chief Marshal Sudarshana Pathirana from Nepal.

Within weeks after the general election held on 21 Nov., the NPP brought the State Intelligence Service (SIS) under DIG Dhammika Priyantha. The appointment brought the SIS under the police again. Following the 2019 presidential election, President Gotabaya Rajapaksa appointed Maj. Gen. Suresh Sallay as head of the SIS, in place of DIG Nilantha Jayawardena, also fined by the Supreme Court for failing to thwart the NTJ attacks. The government picked DIG Priyantha in spite of him not having served the intelligence services previously.

In spite of Jayawardena being accused of negligence, in early January 2023, on the recommendation of the then IGP Chandana Wickremaratne, he was promoted to the rank of Senior DIG and appointed Senior DIG Administration. However, in July, in the run up to the presidential election, the National Police Commission (NPC) sent Jayawardena on compulsory leave pending an internal disciplinary investigation into his part in the overall intelligence failure leading to the Easter Sunday attacks.

Near simultaneous attacks claimed the lives of 270 people. More than 400 others were wounded in the suicide blasts. Among the dead were approximately 40 foreigners.

In line with the NPP’s policy, the Office of Chief of Defence Staff (CDS) would be scrapped and the coordinating of the armed forces brought under direct control of the Defence Ministry, sources said. Hence incumbent CDS General Shavendra Silva, the wartime GoC of the celebrated 58 Division (formerly Task Force 1) would retire on 31 Dec., 2024.

The appointment of Brig. Deeptha Ariyasena as head of the Directorate of Military Intelligence (DMI) was among the key changes effected by the new government. Several senior officers of the DMI had been moved to the Regimental Centre while the government is contemplating what one source called total overhaul of the intelligence community.

Ariyasena, who had been with the mechanized infantry, served in the East as Brigadier General Staff when Maj. Gen. Aruna Jayasekera functioned as the Security Forces Commander, East, in the post-war period. Ariyasena hadn’t served the intelligence services before the new appointment. Jayasekera retired in Oct. 2019 after having served the Army for over 30 years.

Political and military sources said that the NPP government’s concerns over the security apparatus needed to be addressed soon. Sources pointed out that Defence Secretary Air Vice Marshal Sampath Tuiyakontha and Maj. Gen. Aruna Jayasekera played a significant role in the NPP political campaign in the run up to the presidential and parliamentary polls and were instrumental in overseeing the changes.

The Ilankai Thamil Arasu Kachchi (ITAK) has appointed former MP Mavai Senathirajah as the head of the party’s Central Committee.

Meanwhile, it was reported that C. V. K. Sivagnanam has been appointed as the Acting Leader of ITAK.

The decisions have been finalized during the ITAK’s Central Committee meeting held in Vavuniya today (28), according to MP Gnanamuththu Srineshan.

M.A. Sumanthiran would continue to act as the media spokesperson for the Ilankai Thamil Arasu Kachchi (ITAK)

Srinesan has been appointed as the spokesperson for the parliamentary committee comprising members of parliament, he will comment on parliamentary matters to the media.

However, these appointments will reportedly be effective only until the next Central Committee meeting of the party, he said.

The Criminal Investigation Department (CID) has summoned Yoshitha Rajapaksa, the second son of former President Mahinda Rajapaksa, to record a statement regarding the ownership of a government-owned land in Kataragama.

This follows a statement recorded on December 27 from Major Neville Wanniarachchi, the former personal security officer of Mahinda Rajapaksa.

Accordingly, Yoshitha has been asked to appear before the CID on Friday, January 3, as part of the ongoing investigation into the matter.