The Sri Lankan government is committed to repaying its debt according to Ajith Nivard Cabraal, the state minister for money and capital markets. The minister told Bloomberg in a phone interview that the sovereign will be transferring funds for the maturing $1bn 6.25% 2021s today and said, “I have been saying right throughout that we will pay. Unfortunately some bondholders panicked due to rating actions and analyst reports and sold off at huge discounts”. “Those who came last profited most.”
The payment comes as a relief to investors as Sri Lanka’s liquidity position, hit hard by the pandemic, has been in the news for some time now as it’s forex reserves were down 30% YTD to $3.6bn as of June end. The sovereign was placed under a review for downgrade by Moody’s on July 19 on stressed liquidity and depletion of FX reserves. Following the rating action, the government responded by saying, “Statement by Moody’s Investors Service is ill-timed, ill-judged and hence unacceptable.” Prior to that, the nation was downgraded to CCC+ by S&P in December 2020, to CCC by Fitch in November 2020 and to Caa1 by Moody’s in September 2020. The island nation had ruled out IMF debt restructuring earlier in the month in favor of funding from friendly nations. It secured a $500mn loan from South Korea in May and had signed a $1.5bn currency swap with China in March. It is also negotiating a special swap facility of $1bn with India and for $250mn with Bangladesh.