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Restructuring Guru Buchheit Warns Sri Lanka on Holdout Creditors

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A clause on some of Sri Lanka’s older dollar bonds gives creditors a potential opening to hold the sovereign hostage and stall restructuring negotiations, Lee Buchheit, a veteran of over two dozen debt restructurings who has also been consulted by the Sri Lankan government, told Bloomberg on Thursday.

He says some of the nation’s debt contracts contain the so-called single series collective action clause, which could allow a minority of bondholders to veto or demand terms in the negotiations.

“One must always anticipate the possibility of holdout creditors in an operation of this kind,” Buchheit said in email replies. “No one seriously doubts that Sri Lanka needs debt relief. The debate may focus on how much debt relief and from whom will it be sought.”

While Sri Lanka is seeking a bailout from the International Monetary Fund, the multilateral lender insists that existing debt must be brought to sustainable levels before any aid is doled out. That could include protracted discussions with not just global asset managers but also large bilateral creditors such as Japan, India and China, each of whom would also impose their conditions.

For instance, India has stated that it wants China to be treated on par with other creditors in the debt restructuring process. However, China has historically preferred to hand out fresh loans as refinance rather than rework existing debt and doesn’t often share details of the credit. Sri Lanka hasn’t been able to tap a $1.5 billion swap line from China over concern that the IMF may consider it as a loan and force delays in repayment.

‘Main Challenge’

“The main challenge I see is one of coordination among the three main creditor groups — bondholders, Paris Club bilaterals and non-Paris Club bilaterals like China and India,” said Buchheit. “A commitment by Sri Lanka to even-handed treatment of these three groups should go a long way toward smoothing the path of the negotiations.”

China has indicated that it will not insist on preferential repayment of loans and is willing to be treated at par with other creditors, Sri Lanka’s President Gotabaya Rajapaksa said in an interview on Monday.When asked if Beijing would be willing to be treated on par with other creditors, Foreign Ministry spokesman Zhao Lijian said on Tuesday that China supports “the proper settlement through consultation with relevant parties and institutions” and hopes other countries will also play a constructive role.

“We hope that Sri Lanka will protect the legitimate rights of foreign investors and safeguard and uphold the credibility and good investment environment at home,” he added.

Sri Lanka is grappling with a worsening humanitarian crisis after it ran out of dollars to import food and fuel, stoking inflation to 40% and forcing a historic debt default. Sri Lanka needs $5 billion to ensure “daily lives are not disrupted,” and a further $1 billion to strengthen the rupee, Prime Minister Ranil Wickremesinghe told Parliament Tuesday.The first step would be a Debt Sustainability Analysis from the IMF, which will provide an outline of how much of a haircut creditors could see. Unlike corporate bankruptcies, debt restructuring has no clear, defined rules.

That’s where Buchheit fits in. The retired lawyer has worked on almost every major sovereign restructuring case in a career that spanned over four decades, including leading the legal team for the $206 billion Greek negotiations in 2012. That restructuring — the world’s biggest — retroactively imposed an “aggregated collective action clause” across domestic notes, which has since become an important tool to ensure that a majority of creditors can force any minority holdouts to accept a restructuring deal.Bonds issued before 2015 are likely to be subject to the problematic single-series CACs as innovations after that year have eliminated more protracted negotiations by requiring only investors who hold three quarters of overall debt to agree, according to Matthew Vogel, London-based portfolio manager and head of sovereign research at FIM Partners.



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JSA opposes move to extend retirement ages of superior court judges

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Dr. Rajitha Senaratne

The Judicial Service Association (JSA), which represents the country’s magistrates and district judges, has unanimously adopted a resolution opposing the government’s proposed extension of the retirement age of superior court judges.

The resolution was passed at a special general meeting held at the Kaduwela Magistrate’s Court premises, attended by 65 magistrates and district judges from across the country.

The meeting was convened following the resignation of JSA President Pasan Amarasena, who stepped down in protest over the holding of the meeting.

According to the resolution, all members present voted in favour of opposing the proposed extension of the retirement age of Supreme Court and Court of Appeal judges.

Amarasena resigned after facing criticism for unilaterally expressing support for extending the retirement age of the Chief Justice. Following his resignation, JSA Secretary Suranga Munasinghe issued a statement to members rejecting the allegations contained in Amarasena’s resignation letter.

Meanwhile, former Health Minister Dr. Rajitha Senaratne claimed the government’s attempt to extend the tenure of superior court judges was aimed at securing their support in pursuing what he described as a campaign of political revenge against Opposition members.

Addressing a meeting at the Sri Lanka Freedom Party headquarters on Darley Road, Colombo, Senaratne argued that if the government’s justification was to retain experienced judges and avoid vacancies, similar retirement age extensions should also be granted to other professions, including university academics.

“The judges themselves have now unanimously opposed the government’s move, as reflected in the outcome of the Judicial Service Association’s special general meeting at Kaduwela,” he said.

by Chaminda Silva

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Next two weeks critical as dengue risk soars

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Mosquito larvae density in Sri Lanka’s Western Province has increased significantly, making the next two weeks an extremely high-risk period for dengue transmission, according to Consultant Physician Dr. Ananda Wijewickrama, a member of the Expert Committee on Dengue Management.

Speaking during a television programme, Dr. Wijewickrama warned that based on the current trend of dengue transmission, the situation could become more serious than the country’s 2017 dengue outbreak.

He said hospitals in the Western Province have already exceeded their capacity due to the sharp increase in patient admissions, with some facilities being forced to accommodate two or even three patients in a single hospital bed.

Also speaking during the programme, Prof. Neelika Malavige of the University of Sri Jayewardenepura said early signs of the current outbreak had been visible as far back as December and January.

“We could already see indications of this in December and January. With the current changes, the trend is not encouraging. We usually see an increase in dengue cases during the Southwest Monsoon period from May to July, and again during the Northeast Monsoon from November to January. When such conditions are expected, we need to be prepared in advance. After that, from February to April, we experienced extremely high temperatures, and mosquito breeding tends to slow down during periods of excessive heat,” she said.

Professor Malavige also noted that three dengue vaccines have been approved in various countries and are currently being used in several Asian nations, including Indonesia, the Philippines, Thailand, Vietnam and Malaysia.

“However, there are many factors Sri Lanka would need to consider before introducing a dengue vaccine. It would not have an immediate impact on reducing an epidemic. The vaccine requires two doses, and it takes time for immunity to develop after vaccination. However, for people who have previously been infected with dengue, the vaccine has shown very good effectiveness,” she said.

Sri Lanka has so far reported 66,064 dengue cases this year, while the death toll has risen to 46.

A total of 10,685 cases were reported during the first nine days of July alone, including 1,030 new infections reported yesterday.

Of the total number of cases, 52.7% have been reported from the Western Province. Gampaha District has now overtaken Colombo District as the area recording the highest number of dengue infections.

Meanwhile, amid the heightened risk, special dengue control operations involving members of the armed forces were carried out today in several parts of the country.

by Pradeep Prasanna Samarakoon

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Budget 2027 on Nov. 12

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The second reading of the 2027 Appropriation Bill will be presented in Parliament on November 12, the Ministry of Finance announced.

The Ministry said the Bill will be published in the Government Gazette on September 18 and presented for its first reading in Parliament on October 7.

The draft Appropriation Bill for 2027, which sets out the proposed expenditure allocations for each Ministry, is scheduled to be submitted to the Cabinet for approval on September 14.

According to the Ministry, the second reading debate on the Budget will be held from November 13 to 20, while the Committee Stage debate is scheduled from November 21 to December 14.

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