Sri Lanka

Sri Lanka sued by US bondholder over default

Sri Lanka was sued in the US by a private bondholder after it defaulted on its debt for the first time in history while struggling to stop an economic meltdown.

Hamilton Reserve Bank Ltd., which holds more than $250 million of Sri Lanka’s 5.875% International Sovereign Bonds due July 25, filed the suit Tuesday in a New York federal court seeking full payment of principal and interest.

Sri Lanka fell into default in May after the expiry of a 30-day grace period for missed interest payments on two of its sovereign bonds. It was the first sovereign debt default by the country since it gained independence from Britain in 1948.

Hamilton Reserve, based in St. Kitts & Nevis, said in the lawsuit that the default is being “orchestrated by officials at the highest levels of government,” including the ruling Rajapaksa family, and accused Sri Lanka of excluding bonds held by domestic banks and other interested parties from an announced debt restructuring.

“As a result, these favored Sri Lankan parties stand to be paid principal and interest in full, while the Bonds — which are also broadly held by US retirement systems including Fidelity Investments, BlackRock, T. Rowe Price, Lord Abbett, JPMorgan, PIMCO, Neuberger Berman and other US investors — remain indefinitely in default and unpaid, causing American retirees tremendous suffering from potentially massive losses of up to 80% of their original investment value,” lawyers for Hamilton Reserve said in their complaint.

Creditor group

More than 30 asset managers holding Sri Lanka’s international bonds announced on Tuesday the formal launch of a creditor group to start debt restructuring talks with the island nation, according to a statement from legal adviser White & Case LLC.

Amundi Asset Management, BlackRock, HBK Capital Management, Morgan Stanley Investment Management and T. Rowe Price Associates Inc are among members of the group’s steering committee, which has Rothschild & Co as financial adviser.

“The Group is broadly representative of Sri Lanka’s bondholder base, both by type of institution and by geography, and holds Bonds across each outstanding series,” the statement added, though it did not specify the percentage of bonds it holds on the outstanding $12.6 billion overseas sovereign debt.

Sri Lanka has hired heavyweight financial and legal advisers Lazard and Clifford Chance as it prepares for the difficult task of renegotiating its complex web of creditors, including bilateral lending from Japan, India and China.

The creditor group said it was ready to engage in talks with both Sri Lanka’s authorities and other creditors, adding that the country should “implement a package of meaningful reforms and fiscal adjustments.”

The island nation is grappling with a worsening humanitarian crisis after it ran out of dollars to purchase imported food and fuel, pushing inflation to 40% and forcing the default. Sri Lanka needs $5 billion to ensure “daily lives are not disrupted,” and a further $1 billion to strengthen the rupee, Prime Minister Ranil Wickremesinghe told parliament earlier this month.

Sri Lankan authorities on Monday began talks with the IMF, working toward an agreement that could offer creditors enough comfort to lend fresh funds to the bankrupt nation that’s seeking $6 billion in coming months.

The case is Hamilton Reserve v. Sri Lanka, 22-cv-5199, US District Court, Southern District of New York (Manhattan).

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