Domestic Debt

Restructuring in Sri Lanka

P R O P O S E D T E R M S O F T H E D O M E S T I C D E B T R E S T R U C T U R I N G ( D D R)

2 9 J U N E 2 0 23

Here are the Key Points you need to know

Asha Securities Research

Source: Debt Restructuring in Sri Lanka – Presentation to the Cabinet of Ministers 28thJune 2023 by CBSL Governor
 • Sri Lankan Public Debt Composition
Key Points • Central Government’s local Debt Composition

• Proposed Terms of the Domestic Debt

Restructuring (DDR)

• Options for Sri Lanka Development Bonds

(SLDBs) and Foreign Currency Banking Units
(FCBUs)

• Incentives for Participation

• Impact on Gross Financing Needs (GFN)

• Remaining Timeline of DDR

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Sri Lankan Public Debt Composition
Central Bank
Borrowings
Guaranteed Debt 6%
4% Treasury Bills
16%
Commercial
External
Borrowings
16%

Multilateral Treasury Bonds

External Debt 30%
11%
Bilateral External Other Domestic
Debt Debt
12% 5%

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 Sri Lankan Domestic Debt Composition

Other T-Bills,
Loans, 4,575,
% from % from
1,923, 29% Overview of T-Bills holders Total T-
Overview of T-
Total T-
Bonds holders
12% Bills Bonds

Superannuation
CBSL 62.40% Funds 42.70%
Other Non-Deposit
Taking Financial
Banks 18.70% Institutions 9.00%
Non-Deposit Taking Institutions 17.50% Banks 44.50%
Other 1.10% Other 3.40%
Non-residents'
T-Bonds, Non-residents' holdings 0.30% holdings 0.10%

9,119, As the end of 2022 end; Source: MOF CBSL 0.30%

59%

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 Superannuati
Non-residents'
on Funds,
holdings, 0.10%

Proposed Terms of the Domestic Debt CBSL, 0.30%

42.70%

Restructuring (DDR) Other, 3.40%

Banks, 44.50%
Total T-Bonds

Superannuation Funds ’ T-Bonds Other Non-Deposit

Taking Financial
Institutions, 9.00%

• T-bonds of superannuation funds to be exchanged

with a basket of 12 instruments of equal amount
maturing from 2027 to 2038.
• Coupon structure
• 12% -till 2025
• 9% - till maturity.

• Minimum Participation Requirements:

50% for outstanding bonds maturing in 2023 and 100% of bonds maturing
between 2024 and 2032 (incl.)
• No haircut
Asha Research • Coupon payments accrued up to the settlement date will be settled in LKR (cash) 5
03-Jul-23
 Non-Deposit Non-residents'
Taking holdings, 0.30% Other, 1.10%

Proposed Terms of the Domestic Debt Institutions,

17.50%
CBSL
62.40%
Restructuring (DDR)
Banks, 18.70% Total T- Bills

CBSL’s T-Bills and Provisional Advances to Government

• Central Bank holdings of T-bills to be converted to a basket of 10

instruments maturing from 2029 to 2038.
• Composition of the basket of instruments
• 4 instruments maturing between 2029-2032, each equal to 4% of the tendered amount
• 6 instruments maturing between 2033-2038, each equal to 14% of the tendered amount

• Coupon structure
• 12.4% up until 2024
• 7.5% up until 2026
• 5.0% until maturity
• No haircut
Asha Research
• To be implemented in Phase 2 of the DDO
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 Non-residents' CBSL, 0.30%
holdings, 0.10%

Proposed Terms of the Domestic Debt Superannuati

on Funds,

Restructuring (DDR) Banks,

42.70%

Other, 3.40%
44.50%

T Bills and T- Bonds held by Banks

Other Non-
Total T-Bonds Deposit Taking
Financial
Institutions,
9.00%

• Exclusion of T-bill and T-bond holdings of the Banking sector

from the DDR due to
• banking sector stress,
• increasing non-performing loans (NPLs),
• external debt restructuring impact, and
• high taxation.

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Proposed Terms of the Domestic Debt Restructuring (DDR)
SLDBs and FCBUs ( 3 Options)
• Exchange of outstanding SLDBs/FCBUs against new USD instruments.

Option 01: USD Option 02: USD Option 03: LKR

Exchange of outstanding SLDBs/FCBUs against new USD-instruments new LKR-instruments
• Nominal haircut: 30% • No nominal haircut • No nominal haircut
• 6-year final maturity (2029), • 15-year final maturity • 10-year final maturity (2033),
no grace period (first (2038), 9-yr grace period no grace period (first
amortization: 2024) (first amortization: 2033) amortization: 2024)
• Amortization profile: linear • Amortization profile: linear • Amortization profile: linear
• Floating interest rate: SLFR
• Interest rate: 4.0% (fixed) • Interest rate: 1.5% (fixed)
(policy rate) + 1.0%
Treatment comparable to external creditors No CoT constraint

• Past due interest and interest accrued up to the settlement date will be settled in LKR (cash)
• Every holder of SLDBs and FCBUs would be entitled to choose between one of the three
options listed above
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Incentives for Participation
Superannuation funds are encouraged to participate;
Non-participating funds are subject to a higher income tax rate of 30% (vs.
the current rate of 14%), resulting in an average return of 7.7% (vs. 9.1%
under a participating scenario)

Participation of Superannuation Funds

Avg. return on portfolio over 2023-

Scenario Scenario Detail 2038
Scenario 01 Participation to the DDO as per the DDO terms 9.10%
No participation to the DDO, application of
higher annual income tax of 30%(16 % Higher
Scenario 02 than Current) 7.70%
Current status-quo, no DDO and annual income
Status Quo tax at current rate of 14% 9.40%

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Impact on Gross Financing Needs (GFN)

GFNs o.w. Primary o.w. Interest o.w. Principal

(avg. between Balance Payments Payments
In % of GDP 2027-32) (surplus if negative) (on CG+debt) (on CG+debt)
Absence of debt treatment 16.80% -2.30% 7.90% 11.20%
External debt restructuring
(without DDO) 14.20% -2.30% 6.40% 10.10%

External debt restructuring and

domestic debt optimization 12.70% -2.30% 5.90% 9.10%

IMF target: 13% of GDP

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Remaining Timeline of Debt Restructuring

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Disclaimer

• Important Information
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publicly available information, internally developed data and other sources, believed
to be reliable. Whilst all responsible care has been taken to ensure that the facts stated
are accurate and the opinions given are fair and reasonable neither Asha Securities
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