The US Government has said a bondholder’s lawsuit filed against Sri Lanka over its historic debt default should be put on hold.

In a statement of interest filed yesterday (2) in New York Federal Court, the US backed the Sri Lankan Government’s request to delay a lawsuit by Hamilton Reserve Bank Ltd. seeking full payment and accrued interest on more than USD 250 million in bonds that came due in July 2022.

The US said the delay would help with ongoing restructuring talks between Sri Lanka and other creditors.

Sri Lanka fell into default in May 2022 after the expiration of a 30-day grace period for missed interest payments on two of its sovereign bonds, the first debt default by the country since it gained independence in 1948. Hamilton Bank sued Sri Lanka in July 2022.

Sri Lanka in July asked US District Judge Denise Cote to put the case on hold for six months. Cote had put her decision on hold until the US decided whether or not to file a statement of interest. 

The French and UK Governments previously asked the court to put the suit on hold.

The two countries said in a Sept. 6 letter that they were writing as members of the Paris Club, an informal group of official creditors that help coordinate repayments for struggling debtor nations.

They said delaying the case was “key to ensuring the success of the International Monetary Fund (IMF) supported assistance programme” for the nation.

Sri Lanka recently announced the completion of its local debt restructuring plan and is now engaging with other holders of Sri Lanka’s foreign debt, including China and India.

Hamilton Reserve has opposed the bid to postpone the proceedings, saying that putting them on hold “would be both contrary to US policy interests and an exercise in futility.”

The case is Hamilton Reserve Bank v. Sri Lanka, 22-cv-5199, US District Court, Southern District of New York (Manhattan).

(Bloomberg)