Moody’s places Sri Lanka’s rating under review for upgrade after bond-exchange offer

:Moody’s has placed Sri Lanka’s Ca long-term foreign currency rating on review for an upgrade, the credit ratings agency said on Wednesday, following the government’s bond-exchange offer that aims to complete 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 its efforts to stabilize the economy.
Moody’s gave a provisional Caa1 rating -three notches above the current sovereign rating- to Sri Lanka’s new U.S. dollar-denominated debt issuances, namely macro-linked bonds (MLBs), a governance-linked bond (GLB), and stepup and past-due interest (PDI) bonds.
MLBs have a downside on principal, which put in doubt whether that would prevent agencies from issuing ratings on them -a requirement for them being indexed. The GLB is the first of its kind.
In its assessment of the rating Moody’s said the issuances will rank equally with all 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.