Sri Lanka’s efforts to declare its external debt restructuring “99 percent complete” are now facing sharp scrutiny, as official disclosures and creditor communications reveal that the restructuring of the Government-guaranteed SriLankan Airlines (SLA) US$175 million bond is far from settled contradicting public claims of an imminent breakthrough.
Treasury Secretary Harshana Suriyapperuma, in a statement issued alongside a filing on the Singapore Exchange (SGX), described the agreement-in-principle with SLA bondholders as a major step towards “full normalization” of relations with international creditors. He asserted that the deal would allow the country to claim that “99 percent of our external debt will now be settled.”
However, the SGX filing the only legally binding disclosure tells a more cautious story. The document clarifies that the restructuring plan is not finalized. Instead, it remains an “agreement-in-principle” subject to multiple layers of approval, including clearance from the Official Creditor Committee and confirmation from the International Monetary Fund (IMF) to ensure the proposal aligns with long-term debt-sustainability assessments. Only after those confirmations can authorities move to implement the plan, with hopes of completion by year-end.
The restructuring covers SLA’s defaulted US$175 million guaranteed bond, which slipped into arrears after the 2022 debt moratorium. According to the terms disclosed to investors, SriLankan Airlines and the Government will make US$60 million available for a cash tender at 85 percent of each noteholder’s claim. For those opting to exchange their notes, the Government will issue new bonds at a rate of US$0.85 for every US$1 of outstanding claims. Non-consenting creditors will be forced into a less favourable exchange US$0.75 for every US$1 owed.
These new Government bonds will be issued through a tap of the existing 2028 sovereign bond and amortised in three instalments: April 2026 (27.4%), April 2027 (27.4%), and April 2028 (45.2%).
But the transaction can only move ahead if at least 75 percent of bondholders vote in favour of the restructuring at a formal meeting. This threshold remains a major obstacle, given that an influential Ad Hoc Group of bondholders controlling more than half the notes has yet to fully agree to the terms. SLA’s own August cleansing notice underscored this challenge, bluntly noting that “despite constructive discussions,” no agreement had been reached at the time.
SLA Chairman Sarath Ganegoda has expressed measured optimism, calling the agreement-in-principle an important milestone and a chance for the company to approach the future with greater confidence. But rating agencies remain unmoved. S&P Global continues to classify Sri Lanka as being in Selective Default specifically because the SLA guaranteed bond remains unresolved.
Adding to the uncertainty is a US$250 million holdout creditor in the sovereign bond stock—another critical barrier to the Government’s “99 percent” completion narrative.
As the year draws to a close, Sri Lanka’s restructuring process is undeniably in its final phase. Yet the unresolved SLA bond remains the last major hurdle and the Government’s ability to maintain credibility now depends entirely on whether creditors approve the proposal in the months ahead.
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