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Sri Lanka bondholders brace for big losses in debt restructuring

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Sri Lanka’s creditors face losing a third to half of their investment in the country’s dollar bonds, after the government announced it would restructure $11 billion worth of debt, the first such financial shake-up in its modern history, according to a report issued by Reuters.

The report further said:

“Formal debt talks haven’t started but analysts are already crunching the numbers to estimate what kind of haircuts could be inflicted on bondholders.”

“Mired in economic crisis, Sri Lanka has halted all external debt payments and is prioritising its remaining hard currency reserves to buy food and fuel”.

“The country of 22 million has been hit by nationwide street protests and shortages of everything from power to medicines, and its dollar bonds trade at deeply distressed levels of around 40 cents in the dollar.”

“With markets factoring in an International Monetary Fund (IMF) loan programme as part of the debt overhaul, a $1 billion bond maturing on July 25th is valued at around 45 cents to the dollar, Refinitiv data showed.”

“Meanwhile, Citi projects that across the bonds maturing between 2022 and 2030, Sri Lanka may seek a coupon haircut of around 50%, a reduction of at least 20% in face value and maturity extensions between 10-13 years.”

“Assuming an 11% exit yield, we estimate that the recovery value on the dollar bonds in such a scenario could range in the low to mid 40s,” Citi strategist Donato Guarino said, referring to the interest rate at which the new securities will trade on the day of the debt exchange.”

“Step-up coupons – interest payments that increase over time – could also play a role “to give the government more time to recover” after the restructuring, Guarino added, noting these were used in Ecuadorean and Argentine debt restructurings.”

“Tellimer analysts assumed in their base case scenario a 30% haircut. They assign a recovery value near 60 cents on the dollar for the bonds, with a 8% exit yield.”

“They also flagged an alternative scenario with a 42-cent recovery value and a 16% exit yield.”

“Tellimer senior economist Patrick Curran considers a 50% haircut a “worst case” scenario, with a recovery value as low as 30 cents for a 16% exit yield.”

“He highlighted the possibility that the debt overhaul might not be as swift as hoped.”

“While bondholders will receive some downside protection if negotiations drag out if interest is capitalised, prolonged delays will also make for a more onerous starting point and political risk will raise exit yields, potentially eroding recovery values,” they added.

“Ratings agency S&P Global has said debt talks could be complicated and take “many months” to complete.”

“On Wednesday, it lowered Sri Lanka’s foreign currency rating to “CC” from “CCC” – two notches above the level denoting default – while Fitch cut its rating to “C” from “CC”.

“JPMorgan analysts say the debt servicing moratorium is expected to pave the way for an IMF programme but warn a restructuring might be “more comprehensive” than what has been announced.”

“As of now, the debt service suspension only covers about 55% of public debt, Citi calculates, noting the latest IMF report hints at a “tough programme ahead.”

“The fund recommends tax reforms, and possibly, curbs on public-sector wages and capital expenditure.”

“Asset managers BlackRock and Ashmore are among the top holders of Sri Lanka’s international bonds. They are part of a fledgling creditor group, with White & Case acting as legal adviser.

Bondholders are in wait and see mode until the government picks a financial adviser, one creditor said, speaking on condition of anonymity.” Reuters report said.



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Rootcode wins Startup of the Year and People’s Choice Award at SAARC Startup Awards 2022

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Rootcode, one of Sri Lanka’s leading tech companies, recently took home the “People’s Choice Award” in addition to being bestowed with the “Startup of the Year” title at the SAARC Startup Awards 2022. This regional recognition marks a significant milestone for the Sri Lankan tech space and workforce. Rootcode’s mission to build great tech is well underway, and it is gaining traction faster than ever.

This is the first time a Sri Lankan tech company has made a name for itself in the regional competition, and it is a watershed moment that has focused the global spotlight on Rootcode’s distinct approach to fostering innovation in Sri Lanka. This is also the first time that a Sri Lankan company was able to take home two awards of those presented at the SAARC Startup Awards.

Global Startup Awards SAARC celebrates the spirit of entrepreneurship and promotes bridging boundaries through innovation in its regions, which include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka, by recognizing them with its most prestigious awards program, attended by top-notch entrepreneurs, corporates, investors, and ecosystem builders from Nordic, Central Europe, SAARC, and ASEAN regions.

Every year, the SAARC Startup Awards bring together hundreds of South Asian startups, entrepreneurs, investors, co-working spaces, and accelerators to provide a platform to highlight trailblazers in the region’s startup world. Rootcode was chosen ahead of dozens of other regional tech startups in the competition.

Sri Lanka is a relative newcomer to the South Asian startup fraternity, and Rootcode’s ability to represent the country on the global stage not long after its inception is remarkable.

“We are extremely humbled and honored by the support shown to us at the SAARC Startup Awards 2022, and being recognized under two categories is a huge milestone for us,” said the CEO and Founder of Rootcode Labs, Alagan Mahalingam. “We have always been driven forward by excellence, collaboration, and integrity, which I believe is the reason why we have come so far and why Rootcode continues to grow every day.”

Rootcode is driven by its focus on helping businesses build great tech not just locally but globally, and its achievement at the SAARC awards stands as a testament to that. Despite the challenging times, this is a win for Sri Lanka.

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INSEE Cement felicitates Sri Lanka’s youngest Commonwealth medallist

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INSEE Cement awarded aspiring wrestler, Nethmi Ahimsa Fernando, who won a Bronze Medal for Sri Lanka at the recently concluded Commonwealth Games in Birmingham, LKR 1 million cash reward, to support her to pursue her passion. Suranga Kumara, her coach, also received LKR 250,000 cash reward, in appreciation of his contribution towards Nethmi’s recent achievements. INSEE Cement has also pledged to support Nethmi’s aspiration to represent Sri Lanka at the 2024 Olympic games, while also providing the entire cement requirement for the completion of her new house, which is presently under construction, in collaboration with the Manusath Derana initiative.

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Textile maker Teejay knits strong start to 2022-23

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Q1 revenue more than doubles to Rs 23.9 billion

Teejay Lanka PLC has made a positive start to 2022-23 posting Group revenue of Rs 23.9 billion for the three months ending 30th June 2022. The Group achieved nearly half its full-year revenue of 2021-22 in just the first quarter of the new financial year as a result of the low base of the previous financial year due to the impacts of COVID, the depreciation of the Rupee and the passing on of yarn price increases during the last quarter.

In a filing with the Colombo Stock Exchange (CSE), Sri Lanka’s largest textile manufacturer said it had also recorded significant growth in pre-tax and net profit at both Group and Company level in the quarter reviewed.According to interim financial statements, Group profit before tax for the three months grew by more than Rs 1 billion or 291% to Rs 1.5 billion, while Group net profit for the period was up 301% to Rs 1.2 billion.

At Company level, revenue improved by 108% in the quarter under review to Rs 12.9 billion, while profit before tax grew by 323% to Rs 1.5 billion, and net profit increased by 311% to Rs 1.3 billion.

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