Govt. picks Lazard, Clifford Chance as advisers for external debt restructuring

• Rothschild & Co. acting as financial adviser for creditor group and White & Case LLP as legal adviser

The Government has selected Lazard Institute of France to advise on the external debt restructuring program and Clifford Chance LLP Institute for necessary legal expertise based on their technical and financial bids submitted.

The selection process of international financial advisory service and international legal advisory services attracted 28 and 23 Expressions of Interests (EOIs) respectively.

The two successful parties were recommended by the Steering Committees appointed by the Cabinet. The cost for the financial advisory service was stated as $ 5.6 million by Cabinet spokesman Minister Bandula Gunawardena yesterday. 

Central Bank Governor Dr. Nandalal Weerasinghe on Monday told a forum organised by the Press Institute that the Committee was successful negotiating down the cost.

Bloomberg recently reported that Rothschild & Co. is acting as the creditor group’s financial adviser and White & Case LLP is its legal adviser.

The crucial approval by the Cabinet was much sought after as Sri Lanka lost time due to the political instability since early May. The original plan was to finalise selection within two weeks of the closure of EOIs originally by 16 April and later by 22 April.

CBSL Governor Dr. Weerasinghe said that the debt restructuring will take about six months to complete.

On 12 April, Sri Lanka announced a pre-emptive negotiated default of all external debt as of that date after it was realised the status was not sustainable. As at end 2021 Sri Lanka’s external debt amounted to $ 51 billion whilst the figure is likely to have ballooned following the sharp 40% depreciation of the rupee.  

Bulk (35%) of the external debt is the expensive International Sovereign Bonds whilst the rest is held by what CBSL Governor described as the Paris Club members (including Japan, UK, US, Germany) and non-Paris Club creditors (including China and India). The exact debt component to be restructured has not been quantified yet.

The scope of work of the financial advisor includes: Evaluation of the debt stock in maintaining sound macroeconomic fundamentals, advising the Government on the strategies in managing debt and facilitation the execution of such strategies; evaluating the current fiscal position and highlight key areas to be focused on in negotiations; designing a mechanism and processes to achieve economic and policy objectives in pursuing the debt management and reform and designing a mechanism to engage with the IMF to best achieve the required fiscal targets of the Government.

The financial advisor has to assist in improving the medium and long term debt management and reform strategies based on sound analysis in line with macroeconomic assumptions; recommending a strategy to achieve the best possible results in negotiations with the IMF and creditors of the Government; negotiate and represent the Government's interests in meeting with creditors; work in consultation with legal advisors and the relevant agencies/stakeholders; any other task assigned in relation to management and reform and reform of debt and the achieving of the objectives of the Government.

The legal consultant is expected to advice the Government on strategies to manage debt and facilitate execution of such strategies in consultation with relevant stakeholders; reviewing legal and regulatory issues on debt management while underlining key areas to be focussed on in negotiations; preparing relevant documents to give effect to the debt management strategies; negotiating and representing the Government's interests in meetings with creditors.

In addition, the legal consultant needs to recommend strategies to engage with the Official Development Agencies in relation to possible development assistance during the process of discussing and reaching consensus with the private creditors and bilateral official creditors on possible re-profiling of the public debt; working in consultation with financial advisors and the relevant agencies/stakeholders; preparation of all legal documentation and establishing and expedite all relevant matters in a timely manner and review timelines proposed by financial advisors and the relevant agencies/stakeholders.