Sri Lanka's dollar bonds slip ahead of Saturday election
Updates throughout, adds analyst comments, background
LONDON, Sept 20 (Reuters) -Sri Lanka's sovereign dollar bonds slipped more than 1 cent on Friday in their last trading session before the country's tightly fought presidential election.
The latest losses wipe out most of the gains the bonds enjoyed on Thursday, when the country reached an 11th hour draft deal with creditors to restructure $12.5 billion of its international bonds.
Shorter-dated maturities saw the biggest drops, with the 2025 bond down 1.2 cents to be bid at 52.654 cents in the dollar, Tradeweb data showed. USY8137FAE89=TE
The country's bonds have been on a roller coaster in recent weeks.
Sri Lanka, which defaulted in April 2022, has struggled to make progress on with bondholders on its debt restructuring but finally clinched a draft deal - or agreement in principle - on Thursday following a third round of formal negotiations.
However, Colombo still needs formal approval by the country's official creditors and the International Monetary Fund which has extended a $2.9 billion bailout to the country.
The outcome of Saturday's election could complicate the draft deal, creating further uncertainty for bond investors.
"Implementing the agreement-in-principle could still face delay or derailment, depending on the outcome of the election
results," said Nishant M Poojary at JPMorgan in a note to clients.
Two of the leading presidential contenders, opposition leader Sajith Premadasa and Marxist-leaning parliamentarian Anura Kumara Dissanayake, have expressed interest in reworking Sri Lanka's IMF loan.
But doing so could have wide-ranging consequences, analysts warned.
"Renegotiating the terms of the (IMF) deal would risk undermining investor confidence, which could cause the currency to weaken, inflation to rise and prompt the central bank to raise interest rates," said Gareth Leather, Senior Asia Economist at Capital Economics.
Reporting by Karin Strohecker; Editing by Amanda Cooper and Christina Fincher
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