SriLankan faces bondholder deadlock as dispute drags on

• Bonds now trading above par as market bets on full repayment
• Negotiations stall between airline and Ad Hoc Group
• Chairman warns Treasury must step in if sovereign guarantee is triggered
• Airline seeks court protection to block winding-up proceedings

While the market appears to be acting on the belief that SriLankan Airlines will not be able to restructure its $ 175 million 7% Government-guaranteed bonds, which matured on 25 June 2024, SriLankan remains adamant that it is not in a position to honour the bonds in full.

Speaking to The Sunday Morning Business, a source with knowledge of the ongoing restructuring process of SriLankan Airlines’ bonds revealed that these bonds were now trading at around 105 cents on the dollar in the secondary market, reflecting market expectations that the airline would be unable to restructure the bonds and would therefore have to honour them in full.

According to statistics published by Bondsupermart, the asking price for the SriLankan bond has ballooned from around 71 US cents in December 2024 to around 105.8 US cents on Thursday (11). 

Commenting further, the source pointed out that talks between SriLankan and the Ad Hoc Group of Bondholders had ended in a stalemate due to the wide disparity between the demands of the two parties. 

“They wanted 98 cents on the dollar; we offered 85 cents,” they said. 

However, speaking to The Sunday Morning Business, SriLankan Airlines Chairman Sarath Ganegoda stated that they were not in a position to pay the bonds in full since the amounts received had been used to cover the recurring losses the airline had incurred over the years, amounting to over $ 2 billion.

“This involves a sovereign guarantee, which is why we appointed Lazard. Therefore, whatever we offer to the bondholders has to be with the approval of the Treasury, because the Treasury will have to eventually honour this liability if the airline cannot,” he said. 

Ganegoda admitted that although negotiations with the Ad Hoc Group of Bondholders had reached a deadlock, financial adviser Lazard continued to engage with it. He further claimed that the airline was not in a position to offer anything beyond what had already been offered to the bondholders.

“If you look at SriLankan’s balance sheet, it has negative net worth,” he pointed out.

Earlier this year, SriLankan Airlines instituted legal proceedings bearing No.CHC/36/2025/CO before the Commercial High Court alleging that it had received a letter dated 11 June 2024 from a law firm named Law Debenture Trust (Asia) Ltd.

In the letter, the law firm had informed that it would be taking legal action against SriLankan Airlines in terms of Section 272(a) of the Companies Act No.7 of 2007 to wind up the airline over the failure to settle the amounts due under its $ 175 million bonds due in June 2024.

SriLankan alleged before the court that neither the aforesaid law firm nor DB Trustees (Hong Kong) Ltd., the trustees of SriLankan’s $ 175 million bonds, were creditors under the said bonds and were therefore not entitled to institute a winding up application against the airline.

Accordingly, on 2 July, Commercial High Court Judge Amali Ranaweera granted an enjoining order preventing DB Trustees (Hong Kong) and Law Debenture Trust (Asia) from instituting proceedings for the winding up of SriLankan Airlines.

The enjoining order requested by SriLankan Airlines is as follows: “For an enjoining order preventing the first and/or second defendants, their servants, agents, and all those acting under and through them and/or for and on their behalf from instituting any action and/or proceedings for the winding up of the plaintiff company and/or any proceedings which would result in the winding up of the plaintiff company.”

Case No.CHC/36/2025/CO has now been fixed for order on the interim injunction sought by SriLankan, with parties directed to file their written submission on or before 13 October.

Soruce: Themorning