CDB provides $1 billion loan in 2018 to help Government of Sri Lanka meet its outstanding debt obligations and shore up foreign exchange reserves (Linked to Project ID#89482, ID#89483, and ID#89484)

In March 2018, the Government of Sri Lanka solicited proposals from international and domestic banks and investment houses for a Foreign Currency Term Financing Facility (FCTFF) — to be denominated in U.S. Dollars (USD) or Japanese Yen (JPY) or Euros or some combination thereof — for an amount of up to $1 billion (USD equivalent). 4 proposals were received from international and domestic banks and investment houses. Through an evaluation and negotiation process, China Development Bank (CDB) was selected as the Government of Sri Lanka’s preferred lender based on price and tenor (maturity length). Then, on October 12, 2018, China Development Bank and the Government of Sri Lanka signed a $1 billion loan agreement (foreign currency term financing facility agreement). The loan (ID# 4510201801100001472) carried the following borrowing terms: an 8-year maturity, a 3.2 year grace period, an interest rate of 5.247 (6-month LIBOR plus a 2.56% margin), and an upfront (management) fee of 1.25% ($6,250,000). Repayment was scheduled to take place in equal semi-annual payments after the end of the 3.2 year grace period. The proceeds of the loan were to be used by the borrower (the Government of Sri Lanka) to shore up official foreign reserves and meet outstanding debt obligations (i.e. repay other loans). The loan fully disbursed on October 17, 2018. Its amount outstanding was $909,100,000 as of June 30, 2022. The borrower subsequently signed a $500 million FCTFF with CDB on March 18, 2020 (captured via ID#89482), a $500 million FCTFF with CDB on April 12, 2021 (captured via ID#89483), and an RMB 2 billion term facility agreement with CDB on August 17, 2021 (captured via ID#89484). All of these loans were designed to shore up foreign exchange reserves and help the Government of Sri Lanka service its outstanding debts. By early 2022, it was clear that the $1 billion CDB loan (issued in October 2018) was non-performing. On April 12, 2022, the Government of Sri Lanka announced a ‘pre-emptive’ sovereign debt default, noting that it would suspend debt repayments to all external creditors other than multilateral institutions. Its decision to suspend external debt service reportedly affected all China Development Bank loans with amounts outstanding at the time of the announcement.

Additional details

1. This $1 billion CDB loan is not included in the China’s Overseas Development Finance Dataset that Boston University's Global Development Policy Center published in December 2020. 2. AidData calculated the all-in interest rate (5.247%) by taking the average 6-month LIBOR rate during the month and year (October 2018) when the loan agreement was finalized (2.687%) and adding a 2.56% margin. 3. One source refers to CDB as the ‘syndicate arranger’ of the loan, which suggests that other lenders may have been involved in the transaction. This issue merits further investigation. 4. The Government of Sri Lanka loan key number is 2018044.

Number of official sources

22

Number of total sources

35