- Grace period expires 18 May for missed dollar bond coupons
- Many of Sri Lanka’s bonds have so-called cross-default clauses
Sri Lanka is sliding inexorably into default as the grace period on two unpaid foreign bonds nears an end, the latest blow to a country rattled by economic pain and social unrest.
The island nation could be formally declared in default if it fails to make an interest payment to bondholders before Wednesday (18), when the 30-day grace period for missed coupons on dollar bonds ends. That would mark its first default.
Sri Lanka’s Government announced in mid-April it would stop paying back its foreign debt to preserve cash for food and fuel imports as it struggled with a dollar crunch that’s led officials to implement capital controls and import curbs. A few days later, it failed to service a $ 78 million coupon on its dollar bonds due in 2023 and 2028, leading S&P Global Ratings to declare a selective default.
“Without an agreement, there will be a formal default,” said Carlos de Sousa, a money manager at Vontobel Asset Management in Zurich. “Legally that matters. But for markets, Sri Lanka is already de facto in default, so the price effect of such an event is probably not going to be significant.”