Sri Lankan Bonds Slide as Election Result Puts IMF Loan at Risk – BNN Bloomberg

(Bloomberg) — Sri Lanka’s dollar bonds slid as leftist candidate Anura Kumara Dissanayake’s victory at the presidential election put the nation’s bailout by the International Monetary Fund and debt deals at peril.

Bonds maturing in March 2029 declined 3.1 cents, the biggest drop in about two years, to 50.2 cents on the dollar on Monday. The S&P Sri Lanka 20 Index of blue-chip stocks reversed intraday losses to trade 2.2% higher. The rupee gained as Dissanayake said the island nation needs international support and his government will work with all.

He had earlier vowed to reopen negotiations with the IMF over its $3 billion bailout, which comes with spending cuts and tax hikes that proved deeply unpopular with voters.

Read: Sri Lanka Leftist Wins Election After Vowing to Rejig IMF Deal

“A Dissanayake win is the worst possible outcome for Sri Lanka’s bonds,” Tellimer strategists Hasnain Malik and Patrick Curran wrote in a note Sunday.

Sri Lanka’s 2029 dollar notes are set for a nearly 15% slide this quarter, a spectacular turnaround after handing investors a return of close to 70% last year, one of the best in emerging markets.

It raises question marks not only for the IMF program but also whether a new administration would honor the agreement reached with creditors, with a risk that Dissanayake will compel creditors back to the negotiating table, they wrote.

“It’s pretty crucial that Sri Lanka sticks broadly to the reform part with respect to the IMF program and we expect the new president elect and his party to broadly stay in line with the program,” Dilshan Wirasekara, chairman of the Colombo Stock Exchange said in an interview with Bloomberg Television.

“I don’t think we run a risk of cancellation of the program,” Wirasekara said adding that only a few parameters of the debt recast deal with IMF could be renegotiated.

The country last week reached an agreement in principle with bondholders to restructure about $12.6 billion in debt. Some members of Dissanayake’s National People’s Power coalition had opposed the debt restructuring terms.

Stocks have mostly factored in the outcome of the presidential election, said Navin Ratnayake, head of research at Colombo-based John Keells Stock Brokers. Market sentiment will depend on the new government’s actions in relation to the economy and debt negotiations, he said.

(Updates with analyst comment in seventh paragraph)