Published on: June 23, 2022 at 17:29 IST
After the South Asian nation defaulted on its debt for the first time in history while struggling to stop an economic meltdown, a bondholder sued Sri Lanka in the US.
The suit was filed on Tuesday in a New York Federal Court by Hamilton Reserve Bank Ltd., which holds more than $250 million of Sri Lanka’s 5.875 percent International Sovereign Bonds due on July 25. The bank’s holding represents more than 25% of the aggregate amount of the bonds, which, per the indenture, would likely enable it to block an undesired modification to the notes.
After a 30-day grace period for missed interest payments on two of its sovereign bonds fell into default in May, Sri Lanka, an island nation off the southern tip of India. Since it gained independence from Britain in 1948, it had never defaulted on a sovereign debt.
Hamilton Reserve, a St. Kitts and Nevis-based company, said in the lawsuit that Sri Lanka excluded bonds held by domestic banks and other interested parties from an announced debt restructuring, and that the default is being “orchestrated by officials at the highest levels of government,” including the family in ruling Rajpaksa family.
The financial health of Sri Lanka’s banks, according to Prime Minister Ranil Wickremesinghe, is “one of the biggest issues” the nation is now dealing with.
After running out of cash to pay for imported food and fuel, which caused inflation to reach 40%, and forcing a default, the island nation is now dealing with a rising humanitarian crisis. Wickremesinghe told parliament earlier this month that Sri Lanka needed $5 billion to ensure that “daily lives are not disrupted” and an additional $1 billion to strengthen the rupee.
As the nation seeks a bailout from the International Monetary Fund, Sri Lanka hired Lazard Ltd. and Clifford Chance LLP in May to serve as financial and legal advisors on debt restructuring.
In an effort to make an agreement that could offer creditors enough comfort to lend fresh money to the bankrupt nation is seeking $6 billion in the coming months—Sri Lanka started negotiations with the IMF on Monday. The case is Hamilton Reserve v. Sri Lanka, 22-cv-5199, Southern District of New York US District Court (Manhattan).