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Sri Lanka shares rise as debt restructure spares banks

COLOMBO (AFP) – Bankrupt Sri Lanka’s bearish bourse made a dramatic turnaround yesterday on the first day of trading since the government unveiled a plan to restructure its huge debt burden.

The All Share Price Index on the Colombo Stock Exchange was 6.71 per cent higher to close at 10,076.64, the highest figure in 10 months.

Gains were fuelled largely by financial sector shares which rose by over 15 per cent after rupee-denominated bonds, largely owned by local banks, were spared a haircut in the debt proposal.

“Banking shares went up 15 to 18 per cent and there was a scramble to buy them,” a broker at the exchange told AFP.

Sri Lanka unveiled its domestic debt restructuring plan last Thursday in line with requirements for an International Monetary Fund (IMF) bailout agreed in March.

The restructure charts a course for Sri Lanka to emerge from bankruptcy after defaulting on its USD46 billion foreign debt last year.

Money loaned to the government by banks and other financial institutions will not be affected under the proposal.

Vegetable sellers at a market in Colombo, Sri Lanka. PHOTO: AFP

But treasury bonds purchased by pension funds will see their interest payments cut substantially and maturity extended by several years.

The government is offering a 30 per cent haircut to its international sovereign bond holders, while China and other bilateral creditors have been offered longer maturities and a nine-year moratorium on repayments.

Markets were closed for five days after the restructure plan was announced to prevent panic reactions.

Sri Lanka’s unprecedented economic crisis has eased somewhat since the government secured its USD2.9 billion IMF rescue package in March.

June inflation at 12 per cent was the lowest since late 2021 after earlier spiking at 70 per cent.

The IMF said last month that Sri Lanka’s economy showed “tentative signs of improvement” but warned Colombo still needed to pursue painful reforms.

Last year’s crisis sparked months of civil unrest which eventually toppled then-president Gotabaya Rajapaksa.

His successor Ranil Wickremesinghe has doubled taxes, removed generous subsidies on energy and sharply raised prices to shore up state revenue.