Sri Lanka Reaches Breakthrough Deal to Restructure SriLankan Airlines Debt

Sri Lanka has moved a step closer to concluding its long-delayed external debt restructuring after the Government and SriLankan Airlines announced yesterday that they had reached an agreement in principle with a majority bloc of international bondholders to restructure the airline’s US$175 million Government-guaranteed bond maturing in June 2024.

The announcement ends months of uncertainty surrounding the treatment of the carrier’s debt—a key component of the country’s wider restructuring of US$210 million linked to the airline. President and Finance Minister Anura Kumara Dissanayake had assured Parliament during the 2026 Budget presentation on 7 November that this final portion of external commercial debt would be settled by the end of 2025.

In a statement, SriLankan Airlines said it held restricted negotiations with six members of the Ad Hoc Group of Bondholders between 23 October and 19 November. These members collectively control about 55% of the outstanding Notes. The talks were supported by financial adviser Lazard and legal counsel Norton Rose Fulbright, while the Bondholder Group was represented by Akin Gump Strauss Hauer & Feld.

The agreement remains conditional on Cabinet approval and non-objection from both the International Monetary Fund (IMF) and Sri Lanka’s Official Creditor Committee, as it forms part of the country’s broader debt workout framework. Once implemented, officials say the deal will help restore normal relations with external creditors while giving the airline room to stabilise its operations.

SriLankan Airlines Chairman Sarath Ganegoda welcomed the development, noting that the airline can now “look to the future with greater optimism.” He thanked bondholders for adopting a “pragmatic approach” that avoided a damaging confrontation. “Our island nation depends on a reliable national carrier for economic recovery,” he said.

Under the agreed parameters, the Government will be discharged from its guarantee once the restructuring is completed. The deal includes a 15% haircut on total claims, with the remaining balance to be settled through a mix of cash and medium-term Government Bonds carrying a 4% interest rate.

Treasury Secretary Dr. Harshana Suriyapperuma described the breakthrough as a “new step toward normalising external relations,” adding that the deal would raise the completion rate of Sri Lanka’s external debt restructuring to 99%. He expressed confidence that the agreement would support Sri Lanka’s credit rating recovery and pave the way for a return to global capital markets.

The transaction will be executed through a dual structure: a US$60 million cash tender offer and a bond exchange offer linked to the existing 2028 Sri Lankan Government 4% sovereign bond. Tendering bondholders will receive payment at 85% of their total claim value, while remaining holders may exchange their Notes for Government Bonds amortising between 2026 and 2028. Any non-participating Notes will be mandatorily exchanged at a reduced rate of 75% of the total claim.

The restructuring will only proceed once an extraordinary resolution is approved by at least 75% of voting bondholders. The Bondholder Group will also receive an agreed work fee for its negotiation efforts.

Both the Government and SriLankan Airlines expressed hope that the transaction can be finalised before year’s end, marking a crucial milestone in the country’s path toward long-term debt sustainability.