(Bloomberg) -- Sri Lanka’s dollar bonds slid as leftist candidate Anura Kumara Dissanayake’s victory at the presidential election puts the nation’s bailout by the International Monetary Fund and debt deals at peril.
Bonds maturing in March 2029 declined 3.4 cents to 49.9 cents on the dollar on Monday morning. Sri Lanka’s dollar notes are set for a nearly 20% slide this quarter, a spectacular turnaround after handing investors a return of close to 70% last year, one of the best in emerging markets.
That’s because Dissanayake has 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.
“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.
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.
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.
Pessimism has also spread to the nation’s stocks, which are down about 12% from a May peak. The rupee has slipped about 2% this month.
(Updates with chart and analyst comment in 4th paragraph.)
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