A tea vendor makes his way as it rains in Colombo, Sri Lanka on Oct 12, 2022. (PHOTO / AFP)

Private international bondholders are ready to hold debt restructuring talks with Sri Lanka consistent with the parameters and targets set out in the International Monetary Fund's program, their legal adviser said on Friday.

Global investment companies Amundi Asset Management, BlackRock, HBK Capital Management, Morgan Stanley Investment Management and T. Rowe Price Associates Inc are among the group of around 30 bondholders being advised by White & Case LLP, a New York based law firm.

The combination of the pandemic, which ruined the tourist sector, the Ukraine conflict, which drove up the price of imported fuel and food, and economic mismanagement pitched the Indian Ocean island of 22 million people into its worst financial crisis in more than seven decades. And having run out of foreign currency to pay for basic imports, Sri Lanka defaulted on its foreign debt in May.

Sri Lanka secrued a preliminary deal on a $2.9 billion extended fund facility with the IMF on Sept 1, though no funds have been disbursed as yet 

It secured a preliminary deal on a $2.9 billion extended fund facility with the IMF on Sept 1, though no funds have been disbursed as yet.

The government has received financing assurances from key bilateral lender India, and it is also seeking assurances from the Paris Club of creditor nations.

The IMF is likely to begin disbursing funds once all of those assurances are in place, analysts say.

Sri Lanka has to restructure debt payments on about $11 billion in bonds. And it has also sought assurances from private creditors.

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"The Bondholder Group ... stands ready to engage quickly and effectively with the Sri Lankan authorities to design and implement restructuring terms that would help Sri Lanka restore debt sustainability and allow the country to re-gain access to the international capital markets during the IMF Programme period," White & Case said in a statement.

Bondholders have also called for Sri Lanka's domestic debt to be "reorganized in a manner that both ensures debt sustainability and safeguards financial stability," the statement said.

They also requested the opportunity to express their views on the "overall design" of the IMF program, it added.

"The bondholders appear to be indirectly seeking a domestic debt restructuring, which Sri Lanka is yet to agree to," said Udeeshan Jonas chief strategist at CAL Group.

"The requirement seems to be more tilted towards reprofiling the domestic debt through maturity extensions rather for coupon or principal haircuts to bring down Sri Lanka's overall gross financing needs."

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Sri Lanka secured financing assurances from India last month. The Paris Club, which includes Japan as a second major lender to Sri Lanka, is also expected to give its assurances to the IMF "soon".