CDB provides $500 million loan in 2020 to help Government of Sri Lanka meet its outstanding debt obligations and shore up foreign exchange reserves (Linked to Record ID#71123, #89483, and #89484)

Project narrative

On March 18, 2020, China Development Bank (CDB) and the Government of Sri Lanka signed a $500 million loan agreement (foreign currency term financing facility agreement or FCTFF). The loan (ID# 4510202001100001745) carried the following borrowing terms: a 10-year maturity (estimated final repayment date: March 18, 2030), a 3 year grace period (estimated first repayment date: March 18, 2023), an interest rate of 6-month LIBOR plus a 2.5% margin, and an upfront (management) fee of $6,250,000. 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 FCTFF agreement was signed by Mr. S.R.Attygalle, Secretary to the Treasury on behalf of the Government of Sri Lanka and Mr. Wang Wei, Deputy Director-General, China Development Bank on behalf of the China Development Bank. The signing of the agreement was witnessed by the Hon. Prime Minister Mahinda Rajapaksa, Chargé d'affaires of the Chinese Embassy Mr. Hu Wei, and Vice President of CDB Mr. Ma Xin. The loan fully disbursed on March 23, 2020. The loan’s outstanding amount was $500,000,000 as of June 30, 2022. There are some indications that this CDB loan may have financially underperformed vis-a-vis the original expectations of the lender. 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. As of March 2023, the Government of Sri Lanka had accumulated $338 million in arrears to China Development Bank.