#AskWatchdog - 05

#AskWatchdog - 05

@July 7, 2022

Read this article in English | සිංහල| தமிழ்

Research by Umesh Moramudali Edited by Aisha Nazim Translated by Nishadi Gunatilake & Kesavan Selvarajah

You asked:

1. Can you get arrested for live streaming?

On 20 June, police arrested youth activist Anuruddha Bandara while he was recording them arresting a group of activists near GotaGoGama. According to Bandara, the police claimed he was arrested for unlawful assembly and obstruction of duty. He was released on bail when produced before the magistrate’s court.

The police is empowered by law to arrest individuals if they obstruct the police from their duties. There is no specific reference to live streaming or recording as the laws were introduced prior to the days of smartphones. Once arrested, the accused should be produced before a magistrate’s court within 24 hours (there are a few exceptions, of course.) If there is no or too little evidence to show any obstruction of police duties, or that the person was part of an unlawful assembly, the person ought to be discharged; and the case against him dismissed.

If there is some material, the magistrate can either permit further investigation or fix the case for trial straightaway. The magistrate will also decide whether to grant bail or not, depending on the material provided.

The police is required to inform individuals of the reason/s for their arrest, at the time of the arrest: this is within the individual’s rights (Article 13 of the Constitution). The law also secures every person's right to be represented by an attorney-at-law, even when at the police station. Every person has the right to demand such.

Clarifications on legal issues here provided by Ermiza Tegal, Attorney-at-Law.

2. How much exactly do we owe China?

Sri Lanka’s debt to China is also often misreported. There are reports that state that Sri Lanka’s debt to Chinese creditors amounts to 10% of the total government foreign debt. Another report stated that it is 15%. However, our analysis shows that as of the end of 2021, Sri Lanka’s debt to Chinese creditors was 20% of the government's foreign debt.

According to data from the External Resource Department (ERD), as at the end of 2021, the total debt to China was USD 7.1 billion while total government foreign debt was USD 35.8 billion.

Sri Lanka’s outstanding debt stock - As at the end of 2021

The general reason for underestimating Sri Lanka’s debt to China is because some loans obtained by China EXIM Bank is excluded — and which are recorded as the debt of a few State-Owned Enterprises (SOEs). The amounts indicated on the website of ERD do not include the loans obtained by SOEs. As at the end of 2021, SOE debt of approximately USD 1.55 billion is not included in the central government debt. These SOEs include Sri Lanka Port Authority (SLPA), Ceylon Electricity Board (CEB), and Civil Aviation Authority (CAA). Loans obtained to construct Hambantota port, Norochcholai Power Plant and Mattala International Airport are recorded as the debt of SOEs and not included in the foreign debt of the government.

Furthermore, from 2018 onwards Sri Lanka had obtained Foreign Currency Term Financing (FCTF) loans from China Development Bank (CDB), and at the end of 2021 outstanding FCTF loans to CDB was USD 2.3 billion. In the ERD categorization, these loans are categorized as market borrowings. Therefore, once the SOE debt and CDB loans are included, Sri Lanka’s debt to Chinese creditors amounts to USD 7.1 billion.

What happens when a country is sued by bondholders?

Short answer: we really don’t know, other than the fact that we’ll end up going to courts.

But here’s a bit of background as to how we ended up getting sued.

The Sri Lankan government was sued by Hamilton Reserve Bank Ltd, based in the USA, demanding full repayment for USD 257 million of Sri  Lanka’s International Sovereign Bond (ISB) due on 25 July. This ISB (US85227SAK24) was a USD 1 billion bond issued on June 2022 by the Central Bank of Sri Lanka (CBSL). The lawsuit was filed in the New York Federal Court seeking full payment of principal.

However, on 12 April, Sri Lanka officially announced defaulting on most of its foreign debt including ISBs, intending to restructure debt. In June, the government appointed M/s. Clifford Chance LLP and M/s. Lazard, France, as legal and financial advisors respectively to negotiate with creditors (countries as well as ISB holders).

Sri Lanka currently runs on almost zero foreign currency reserves. Therefore, the country does not have the capacity to repay foreign loans. Usually, creditors including bondholders come to a settlement with the defaulted country to restructure debt. This means, that such countries are given a grace period to start repaying loans. Bilateral loans obtained from countries that belong to the Paris Club which includes Japan can be restructured with the common consensus of Paris Club members. Loans obtained from countries outside Paris Club such as China or India can be restructured with the consent of individual creditors (Ex : Loan to construct Mattala Airport was obtained from China EXIM Bank and restructuring this loan along with other loans from same entity requires the consent of China EXIM Bank). However, it works differently with the ISB holders.


When Sri Lanka issued ISBs, those were purchased by international banks and financial institutions. Usually, one bank or institution does not purchase the entire ISB. This means that if CBSL issued USD 1 billion ISB, one bank would buy 250 million and another will buy 200 million, and so on. Then such banks and financial institutions resell these to any other investors or banks. Therefore, one ISB is owned by multiple persons/institutions and restructuring ISBs, therefore, requires the consent of the majority of the bondholders.

This is where Collective Action Clauses (CACs) become crucial. These clauses enable a 'supermajority' of creditors to restructure repayments of Sovereign Bonds. The term ‘supermajority’ is subjective and depends on the respective sovereign bonds. If the bond contract/s stipulates that 75% of the total bond value is considered as the supermajority, restructuring the bond repayment only requires the consent of bondholders who holds more than 75% of the bond/s value. Even if 25% of the bondholders demand the repayments instead of restructuring, CAC will supersede that request. Sometimes CAC applies to individual bond while some other times it applies to all outstanding sovereign bonds.

This principle applies to Sri Lanka’s ISBs as well. On 21 June, 30 asset managers holding ISBs of Sri Lanka announced that they launched a creditors group to negotiate about restructuring ISB repayments. As of yet, the group had not declared what percentage of each ISB is held by them. If this credit group’s bond holdings constitute a supermajority defined in CACs. If the ‘supermajority’ of bond holders for these ISBs (Sri Lanka has ISBs worth USD 12.5 Billion) agrees to restructure bond repayments, that will supersede legal action demanding full repayment by other creditors.

However, if CAC is applied to a single bond, that puts Sri Lanka in a concerning position as one bondholder or few bondholders could halt debt restructuring negotiations for that particular ISB. WatchDog does not have access to CACs of the ISB maturing in July 2022. therefore, we are unable to comment on the lawsuit filed on 21 June. However,  Bloomberg reports suggest that ISBs issued prior 2015 has single-series CACs with 75% of bondholders required to agree to a restructuring of a bond. This means, that if an investor owns more than 25% of the value of the bond, such an investor has the potential to hold restructuring of that particular bond and demand full payment. In the case of Hamilton Bank, which filed the case against Sri Lanka, they own USD 257 million of the ISB maturing in July. That amounts to more than 25% of the bond value and if the ISB has a CAC that only applies to this bond, the court case may proceed.

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