NEW YORK: Global asset managers including Fidelity Investments and T Rowe Price Group are staring down the risk of default in Sri Lanka in the face of a deepening economic crisis.
Fidelity Investments’ parent FMR LLC, Lord Abbett & Co and T Rowe Price Group are among the largest overseas holders of the island nation’s US$12.6bil (RM53.17bil) in foreign debt, according to data compiled by Bloomberg, based on holdings most recently disclosed by investors.
FMR holds US$114.3mil (RM482.35mil) of the debt, Lord Abbett has about US$78mil (RM329.16mil) and T Rowe owns US$32.6mil (RM137.57mil), followed by Payden & Rygel and SEI Investments.
Holders for which data is available are estimated to own 4% of the outstanding debt, and the amounts would constitute a small portion of the firms’ overall assets.
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 into 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.
“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 Ltd.
“We think most investors will wait on more political clarity and evidence of an International Monetary Fund 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% 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 April 18, when the government must pay US$36mil (RM151.92mil) in interest on a bond maturing in 2023 and US$42.2mil (RM178.08mil) on a 2028 note, according to Bloomberg data.
The government also has to pay US$1.03bil (RM4.35bil) in principal and interest on a maturing note on July 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 fell to as low as 53 cents (RM2.24) on the US dollar in May 2020 and have traded at distressed levels since then, most recently quoted at 59.7 cents (RM2.52) on the dollar.
The extra yield investors demand to hold Sri Lanka’s sovereign debt, on average, over US treasuries widened by 76 basis points to 30.06 percentage points, according to JPMorgan Chase & Co data, well above the 10-percentage point threshold for distressed debt.
Bloomberg’s search for top holders includes holdings of passive funds, which have little choice in what they buy or sell. — Bloomberg