Sri Lanka to absorb $553m in debt from national carrier

Sri Lanka’s cabinet had approved a proposal to absorb about $553m in debt from staterun Sri Lankan Airlines, a top official said on Tuesday, to smooth its divestiture and make it more attractive to potential investors.

Sri Lanka, which is struggling to emerge from its worst financial crisis in decades, is undertaking a major divestiture drive in loss-making government-owned enterprises, including the national carrier, under an agreement with the IMF for a $2.9bn bailout.

The cabinet approved a proposal for the country’s treasury to absorb part of the national carrier’s debt, which includes $378m owed to state banks and a $175m state-backed bond it defaulted on last February, ports, shipping & aviation minister Nimal Siripala de Silva said.

Sri Lanka expected about $500m from the divestiture, which the government hoped to complete in six months, he added.

“The debt will be reduced to about half of the amount which is there now. Therefore, we feel that there will be more airlines, and entrepreneurs or investors that will come now the airline becomes attractive,” he said.

The total debt of Sri Lankan Airlines is estimated at $1.2bn.

The airline, which has been racking up losses for years, invited bids on October 31 2023, but the deadline to close bids by December 4 was extended by 45 days, De Silva said.

The government would carry on funnelling in between $60m and $70m a month for the next six months to keep the carrier afloat. “Otherwise, if we go at this rate without any assistance the airline will collapse at any moment and 6,000 employees will be out of employment,” De Silva said.

Sri Lanka’s economy is gradually recovering from the financial crisis, which was caused by record low reserves, leading to skyrocketing inflation and currency depreciation.

The airline, one of Sri Lanka’s biggest loss-making state enterprises, has struggled in recent years with a fall in tourism because of the Covid-19 pandemic and the economic crisis.

The International Finance Corporation, a member of the World Bank Group, is the transaction adviser.