Bondholder sues Sri Lanka in US court | Economy and Business News

In its lawsuit, the bondholder said the default is being “orchestrated by officials at the highest levels of government.”

By Bloomberg

Sri Lanka was sued in the US by a bondholder after the South Asian nation defaulted on its debt for the first time in history as it struggled to stem an economic collapse.

Hamilton Reserve Bank Ltd., which owns more than $250 million in Sri Lankan 5.875% international sovereign bonds due July 25, filed suit Tuesday in New York federal court seeking full payment of principal and interests.

Sri Lanka, an island nation in the southern tip of India, went into default in May after the expiration of a 30-day grace period for late interest payments on two of its sovereign bonds. It was the country’s first sovereign debt default since it gained independence from Britain in 1948.

St. Kitts and Nevis-based Hamilton Reserve said in the suit that the default is being “orchestrated by officials at the highest levels of government,” including the ruling Rajapaksa family, and accused Sri Lanka of excluding bonds held of national banks and other stakeholders of an announced debt restructuring.

“As a result, these favored Sri Lankan parties will be paid principal and interest in full, while the Bonds, which are also held by American retirement schemes including Fidelity Investments, BlackRock, T. Rowe Price , Lord Abbett, JPMorgan, PIMCO, Neuberger Berman and other US investors, remain indefinitely in default and unpaid, causing American retirees tremendous suffering from potentially massive losses of up to 80% of the value of their original investment,” lawyers for Hamilton Reserve said in their lawsuit.

A group of Sri Lanka’s largest creditors, including Pacific Investment Management Co., T. Rowe Price Group Inc. and BlackRock Inc., has been established and restructuring talks are expected to start soon, Bloomberg reported, citing people familiar with the deal who requested anonymity ahead of a formal announcement.

The island nation is grappling with a worsening humanitarian crisis after it ran out of dollars to buy imported food and fuel, driving inflation to 40% and forcing default. Sri Lanka needs $5 billion to ensure “daily life is not interrupted” and another $1 billion to strengthen the rupee, Prime Minister Ranil Wickremesinghe told parliament earlier this month.

Sri Lanka hired Lazard Ltd. and Clifford Chance LLP in May to serve as financial and legal advisers on debt restructuring as the country seeks a bailout from the International Monetary Fund.

Sri Lankan authorities began talks with the IMF on Monday, working toward a deal that could offer creditors enough consolation to lend fresh funds to the bankrupt nation seeking $6bn in the coming months.

The case is Hamilton Reserve v. Sri Lanka, 22-cv-5199, US District Court, Southern District of New York (Manhattan).

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