The facts aren’t really in dispute: Sri Lanka really has defaulted on the bond in question, and although HRB’s legal zealousness will be a massive headache to Sri Lanka at a perilous time, it’s not the kind of thing the US government would normally stick its oar in over. The US will occasionally file “amicus briefs” laying out its views on contentious legal cases where it has pressing national interests (that seems to be the issue here), but it hardly ever gets involved in something as routine like this. The US government suddenly and obliquely saying it wanted to get involved made the whole situation even more intriguing. It’s called being a “holdout”.īut the size of HRB’s stake - and the unusual aggressiveness of its lawsuit against Sri Lanka, which began almost as soon as it defaulted in April 2022 - always smelled a bit fishy. There are hedge funds that specialise in sniffing out vulnerable sovereign bonds, amassing a blocking stake, waiting patiently for a broader restructuring to take place, and holding out for full repayment once a country has secured debt relief from other creditors. In essence, HRB’s $250mn is enough in theory to veto any restructuring proposal Sri Lanka makes to that specific security. This specific bond was issued in happier times (2012) and lacks some now-common clauses that make bonds easier to restructure, as Alphaville contributors Mitu Gulati and Mark Weidemaier have written. Somehow, a small bank based in a country with 50,000 inhabitants and GDP of under $1bn has amassed a $250mn face-value stake in a Sri Lankan bond. The case has been brought by Hamilton Reserve Bank in St Kitts & Nevis. But our attention was properly piqued when the US government last week intervened in a lawsuit triggered by the county’s 2022 default. ![]() *Robin Wigglesworth of the FT explains how a small bank of St Kitts and Nevis, a country of 50,000 people & GDP of under $1 billion, is holding Sri Lanka hostage from reaching a debt restructuring agreement with the country’s major lenders.*Īs sovereign debt restructuring nerds, team Alphaville has had an eye on Sri Lanka.
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