INSUBCONTINENT EXCLUSIVE:
to ease repayments in case of future economic pressure, said two sources with direct knowledge of the matter.The country of 22 million
people tipped into its first foreign debt default in May 2022, after a severe shortage of dollars triggered its worst financial crisis since
independence from Britain in 1948.The proposal sent on Oct
2 provides a write-down, or haircut, on both capital and interest, added the sources who declined to be named because the talks are
private.It foresees issuance of regular sovereign bonds and also of so-called Macro Linked Bonds (MLBs), which will automatically lower
coupon payments starting in 2027 if Sri Lanka fails to meet some of the economic targets linked to its International Monetary Fund (IMF)
programme.Representatives for the government did not respond to a request for comment
A spokesperson representing the creditor committee did not reply to a request for comment.The overall proposal includes an option for
creditors that combines MLB notes with a regular bond and a second option of regular bonds with a Value Recovery Instrument (VRI), one of
the sources said.The MLBs were included to ensure the new instruments would be index-eligible, the sources said.Bonds included in an index
generally have more liquidity.The proposal would be a crucial step for Sri Lanka which, under the terms of a $2.9 billion IMF bailout
secured in March, has to provide assurances of debt restructuring from bondholders and key bilateral lenders including China, Japan and
India.It would be the first time such step-down bonds are being used in a debt restructuring, the sources added.The trigger of the step-down
added.The restructuring proposal is based on parameters from the debt sustainability analysis that the IMF produced when it agreed upon the
programme for the battered economy.A copy of the proposal was also sent to the IMF and the Paris Club secretariat, one of the sources
said.Bondholders and the government remain in discussions through financial and legal advisers, so they are still not restricted to trade
