Wednesday, May 22, 2024

Sri Lanka’s Government Absorbs US$553 Million Debt from National Airline in Bold Financial Recovery Initiative


S. Lanka’s cabinet agrees to absorb US$553mil debt from national carrier

In a significant move amid its ongoing financial recovery efforts, Sri Lanka’s government has announced its decision to absorb approximately US$553 million worth of debt from its state-owned national carrier, SriLankan Airlines. This decision aims to facilitate the airline’s divestiture process by making it a more appealing prospect for potential investors. As Sri Lanka grapples with the aftermath of its most severe financial crisis in recent history, this undertaking is part of a larger divestiture initiative regarding loss-making government-owned enterprises. Such efforts are crucial in securing a US$2.9 billion bailout agreemeent with the International Monetary Fund (IMF).

The Cabinet’s consent involves the country’s treasury taking over a portion of the airline’s outstanding debt. This includes US$378 million owed to state banks and a further US$175 million from a state-backed bond the carrier defaulted on in the previous February, as outlined by the Minister of Ports, Shipping, and Aviation, Nimal Siripala de Silva. With estimates placing SriLankan Airlines’ total debt at around US$1.2 billion, this move is anticipated to significantly lighten the financial load on the airline.

De Silva shed light on the government’s expectations to generate approximately US$500 million from the airline’s divestiture. The goal is to complete this transaction within the next six months, during which the government plans to continue financial support to SriLankan Airlines, allocating between US$60 million and US$70 million monthly to ensure its operational sustainability. “Without any assistance, the airline could collapse at any moment, leaving 6,000 employees without employment,” he emphasized, underlining the critical nature of this financial lifeline.

The need for such a bold step arises from the airline’s consistent financial struggles, exacerbated by a decrease in tourism due to the COVID-19 pandemic and the country’s current economic turmoil. The airline officially began seeking bids for its divestiture on October 31, 2023. However, due to the necessity for more time, the original deadline for closing bids set for December 4 got extended by another 45 days.

As Sri Lanka’s economy takes tentative steps towards recovery from a crisis marked by record low reserves, soaring inflation, and depreciating currency value, initiatives such as these present a beacon of hope. The International Finance Corporation (IFC), a member of the World Bank Group, has been appointed the transaction adviser, ensuring that the divestiture process adheres to international standards and practices.

In light of these developments, SriLankan Airlines stands at a crossroads, with the potential for a revitalized future hinging on successful divestiture and strategic management. The government’s decision to absorb a significant portion of the airline’s debt not only underscores the administration’s commitment to stabilizing and revitalizing the national economy but also signals a pivotal moment for one of Sri Lanka’s most pivotal state enterprises.

Alexandra Bennett
Alexandra Bennett
Alexandra Bennett is a seasoned business journalist with over a decade of experience covering the global economy, finance, and corporate strategies. With a Bachelor's degree in Economics and a Master's in Business Journalism from Columbia University, Alexandra has built a reputation for her insightful analysis and ability to break down complex economic trends into understandable narratives. Prior to joining our team, she worked for major financial publications in New York and London. Alexandra specializes in mergers and acquisitions, market trends, and economic

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