• Fri. Sep 30th, 2022

Fidelity among big Sri Lankan debt holders staring down risk

GLOBAL asset managers including Fidelity Investments and T Rowe Price Group could be staring down the risk of default in Sri Lanka in the face of a deepening economic crisis.

Fidelity Investments’ parent FMR, Lord Abbett & Co and T Rowe Price Group were among the largest overseas holders of the island nation’s US$12.6 billion in foreign debt, according to holdings most recently disclosed by investors in data compiled by Bloomberg. FMR held US$114.3 million of the debt, Lord Abbett had about US$78 million and T Rowe owned US$32.6 million, followed by Payden & Rygel and SEI Investments, the data show.

Sri Lanka’s investors are growing concerned about whether the country will be able to keep up on its foreign debt obligations as inflation and protests hit the family that’s ruled the nation with an iron fist for most of the last 15 years.

Anger over hours-long power cuts and food and fuel shortages has spilled unto the streets, leading President Gotabaya Rajapaksa to replace his Cabinet and appoint a new central bank head this week.

The nation is also struggling with a cash crunch that’s triggered capital controls and import curbs. Such global investors owned nearly 4 per cent of the nation’s outstanding sovereign dollar debt, according to the latest available data via filings disclosed at different points in time.

For Fidelity, for example, one of the most recent sources of data available is for an exchange-traded fund as of Monday (Apr 4), while some of the firm’s other funds last disclosed holdings on Feb 28 or earlier.

“Recent unrest and political uncertainty mean any investor now is attempting to catch a falling knife,” said Charlie Robertson, global chief economist at Renaissance Capital. “We think most investors will wait on more political clarity and evidence of an IMF deal, which does improve recovery values, before taking the plunge into local assets.”

A spokesperson for Fidelity declined to comment on specific holdings, as did a spokesman for SEI. A spokesman at T Rowe said Sri Lankan holdings accounted for 1 per cent of its Emerging Market Bond Fund as of the end of 2021. Spokespeople for Lord Abbett and Payden & Rygel did not respond to requests for comment.

The next key test for Sri Lanka’s bondholders will be on Apr 18, when the government must pay US$36 million in interest on a bond maturing in 2023 and US$42.2 million on a 2028 note, according to Bloomberg data. The government also has to pay US$1.03 billion in principal and interest on a maturing note on Jul 25.

Sri Lankan debt slumped over the past years as cities were shuttered and tourism – the nation’s main industry – skidded to a halt. Dollar bonds due in July 2022 were indicated 2 cents on the dollar lower at 55.5 cents Wednesday morning. The extra yield investors demand to hold Sri Lanka’s sovereign debt, on average, over US Treasuries have widened to 29.99 percentage points, according to JPMorgan Chase & Co data, well above the 10-percentage point threshold for distressed debt. BLOOMBERG

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