Plaintiff Hamilton Reserve Bank Ltd. (HRB), countering the defendant Democratic Socialist Republic of Sri Lanka’s motion for a five-month stay, has requested the New York Southern District Court to extend the stay till the end of April 2024 on the condition that timely and specific information about the status of restructuring be submitted by 16 April.
Complete details about any restructuring proposal Sri Lanka made or received and the progress are the key contents of the proposed reports the Plaintiff demands. In its ‘Memorandum of Law in Opposition to Defendant’s Motion for Further Stay,’ HRB argued a further five-month stay until the end of July 2024 is unwarranted. “The traditional stay factors and comity do not support a five-month stay. The prior four-month stay has already afforded Sri Lanka a limited opportunity to achieve a consensual resolution before judgments are entered or enforced against its debts. Nothing more is required,” the Bank said.
Bringing out Peru’s restructuring, which took seven years as an example, the HRB pleaded: “Second Circuit law clearly states that bondholder actions cannot be kept indefinitely. That is because sovereign debt restructurings, which involve ‘voluntary and open-ended negotiations’, are not the equivalent of a judicially enforced bankruptcy proceeding. Instead, sovereign debt restructurings are merely voluntary, private negotiations, with no judicial supervision or clear timeline, that typically take years. Given such negotiations’ protracted and uncertain nature, courts should not deny bondholders’ right to enforce the underlying debt by making their rights conditional on the completion of restructuring.”
“Sri Lanka is pursuing private negotiations with other creditors that have ‘no obvious and reasonably proximate termination date,’ indeed, these negotiations remain at an early stage nearly two years after Sri Lanka’s default. As in Peru, Plaintiff’s rights cannot be made conditional on the completion of Sri Lanka’s restructuring, since there is no assurance of whether or when that will occur. And while Sri Lanka has chosen to make multiple, shorter stay requests, instead of a single request to stay, this action will allow Sri Lanka to complete its efforts to renegotiate its foreign debt, and the result is the same. While the restructuring negotiations drag on, Sri Lanka will simply continue seeking stays for the foreseeable future, making the requested stay ‘indefinite’ for all practical purposes.
Moreover, the combined effect of the prior four-month stay and Sri Lanka’s current request is a nine-month stay: longer than any other stay entered in a sovereign debt case in this Circuit, including the eight-month stay granted in Peru,” the Bank justified.
The Paris Club members and the US have supported Sri Lanka’s request for extension.
Sri Lanka was sued in the United States by a bondholder after the government defaulted on its debt for the first time in history while struggling to stop an economic meltdown where HRB, owns over US$ 250 million in principal amount of US$ 1 billion worth of Sri Lanka’s 5.875% International Sovereign Bonds (ISBs) issued in 2012, filed the lawsuit in June last year in a New York federal court seeking full payment of principal and interest. The Bonds matured on 25 July 2022. Hamilton alleged that due to Sri Lanka’s default, it is owed US$ 250.19 million in principle and US$ 7.349 million in accrued interest (before accounting for pre- and post-judgment interest). In mid-April, Sri Lanka announced a moratorium on foreign debt repayments, including the bonds, and since then, has made no payments on the bonds. The government of Sri Lanka filed a motion in September 2022 to dismiss on the grounds that the plaintiff lacks contractual standing.