Sri Lanka’s financial advisor for its debt restructuring has assured the island nation’s authorities that China’s debt restructuring plan “is comparable” on the treatment, State Finance Minister Shehan Semasinghe said.
Exim Bank of China has agreed on “key principles and indicative terms” to restructure $4.2 billion in bilateral debt, Sri Lanka said after China’s foreign ministry spokesman said a “tentative” agreement had been reached.
The international Monetary Fund and other creditors are still waiting to see full details.
“We will need some time to handle it,” Semasinghe told EconomyNext when asked if China has given the detailed debt restructuring plan to Sri Lankan authorities.
“But the only thing is Lazard has assured that it is comparable in treatment. That is what the IMF also wants. The treatment to be shared with the other creditors.”
Lazard is the financial advisor for Sri Lanka’s external debt restructuring plan.
When asked if comparability means the equal treatment with the other creditors, Semasinghe said: “The equal treatment and comparability. That is what Lazard has informed us. It is our financial advisors. I cannot speak anything beyond that.”
In addition to Exim Bank loans classified as bilateral debt China Development Bank has also given a 2.0 billion dollar term loan to Sri Lanka and there is another 535 million dollars in loans from the same lender which have been classified as ‘commercial’.
Commercial creditors are usually expected to take haircuts in return for faster payback, while bilateral creditors take long grace periods, extend repayment terms and take coupon cuts to give a net present value to help distressed creditors.
NO HAIRCUT?
Two sources who have the knowledge of the discussions between China and Sri Lanka on restructuring commercial loans have told EconomyNext that Beijing authorities have rejected haircuts. Chinese officials have not commented on a haircut.
“I can’t say anything on that. But the only thing what we can say is that the principle of comparability will be assured by us,” Semasinghe told when asked if China has refused haircuts similar to other commercial creditors including sovereign bondholders.
China has become the key factor in deciding the timing of the completion of Sri Lanka’s external debt restructuring.
The IMF concluded its Staff Level Agreement with Sri Lankan authorities on Thursday, a key step in completing a review and keeping the program on track.
“Sri Lanka and the Export-Import Bank of China and look forward to analyzing the details when we receive them,” an IMF statement said.
“We urge all official creditors to move forward and agree on an appropriate debt treatment in line with the financing assurances they provided.”
“Delays risk worsening the economic outlook for Sri Lanka, widening its financing gaps, hindering its return to sustainable growth, and thereby reducing its capacity to repay.”
The Chinese Finance Minister Liu Kun on Thursday has assured a commitment to “a medium-term and long-term program that is mutually beneficial to both parties and aimed at optimizing Sri Lanka’s debt,” during a meeting with President Ranil Wickremesinghe in Beijing, a statement from his media office said.