By Rodrigo Campos and Aatrayee Chatterjee
(Reuters) - Moody's (NYSE:MCO) may raise Sri Lanka's 'Ca' long-term foreign currency rating, the credit ratings agency said on Wednesday, following the government's bond-exchange offer aimed at completing the restructuring of international bonds.
The bond swap, launched on Tuesday, is an important part of the island nation's ongoing $12.55 billion debt restructuring and efforts to stabilize the economy.
Moody's provisionally rated the new U.S. dollar-denominated debt offerings 'Caa1', three notches above the current sovereign rating, though still deep into 'junk'. The government offered macro-linked bonds (MLBs), a governance-linked bond (GLB), and stepup and past-due interest bonds.
MLBs have a downside on principal and the GLB is the first of its kind, which raised doubts about whether agencies would rate the bonds - a requirement for inclusion in indexes.
"Moody's announcement of rating the MLBs is sensible and should support trading liquidity of the securities post exchange," said Samy Muaddi, head of emerging markets fixed income at T.Rowe Price, adding that the contingency features of the MLB build on established precedent in global fixed income.
Moody's said the offerings will rank equally with other similar government obligations.
Sri Lanka had defaulted on its foreign debt for the first time in May 2022, reeling under a severe crisis amid a heavy debt burden and declining foreign exchange reserves.
Sri Lankan USD bonds rose on Wednesday, with the June 2025 issue up 0.75 cent at 65.875 cents on the dollar.
(This story has been corrected to say that the government ‘offered,’ not ‘issued,’ in paragraph 3)