Sri Lanka's government bonds rally on debt restructure deal
Adds IMF Mission Chief's statement in paragraph 3
LONDON, July 4 (Reuters) -Sri Lanka's sovereign bonds rallied nearly 2 cents on Thursday after the government announced a provisional deal to restructure around $12.5 billion of its debt with international bondholders.
The agreement - which still needs the green light from the International Monetary Fund (IMF)and the country's Official Creditors Committee - was announced late on Wednesday.
"We are currently awaiting additional information and will provide the authorities with an assessment of the agreed terms to ensure consistency with the parameters and debt sustainability objectives under the IMF-supported program," IMF Sri Lanka Mission Chief Peter Breuer said on Thursday.
Longer-dated dollar denominated bonds enjoyed the largest gains, with the 2028 maturity up 1.853 cents to be bid at just under 59 cents to the dollar, Tradeweb data showed.
The latest gains lifted many of the maturities to levels last seen in 2021, before the South Asian country went into default in May 2022. USY8137FAL23=TE
The debt rework proposal foresees the old bonds to be swapped into a number of new fixed income instruments, some of which will offer a higher payout if the economy fares better or tax revenues outstrip a certain level.
In an explanatory note on the provisional agreement, labelled the "Joint Working Framework", the government said any upside payouts would only occur in a way that did not compromise Sri Lanka's longer-termdebt sustainability.
"The negotiated Joint Working Framework enables a fair sharing of upside or downside between creditors and Sri Lanka in case of an economic over-performance or under-performance by Sri Lanka," the government said in a statement.
Investors and analysts were optimistic the deal would cross the finishing line soon.
"The announcement from Sri Lanka and SteerCo (Steering Committee of the bondholder group) affirms our views that the restructuring can be completed within the next few months and that the next steps will be largely formalities before the transaction can be completed," said Avanti Save at Barclays in Singapore, reiterating the bank's "overweight" assessment on the bonds.
Reporting by Karin Strohecker in London and Uditha Jayasinghe in Colombo; Editing by Marc Jones and Jacqueline Wong
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