Moody's Investors Service may raise Sri Lanka's 'Ca' long-term foreign currency rating following the government's recent bond exchange offer, aimed at completing the restructuring of international bonds, the credit ratings agency announced on Wednesday.

The bond swap, launched on Tuesday, is a critical component of Sri Lanka's $12.55 billion debt restructuring programme and its broader efforts to stabilise the economy.

Moody's provisionally rated the new U.S. dollar-denominated debt offerings 'Caa1,' three notches higher than the current sovereign rating but still within the speculative 'junk' category. The government issued several types of bonds, including macro-linked bonds (MLBs), a governance-linked bond (GLB), and step-up and past-due interest bonds.

While the MLBs carry downside risks on the principal, the GLB—being the first of its kind—sparked concerns over whether the bonds would receive ratings from agencies, a key requirement for their inclusion in financial indexes. Moody's clarified that the new offerings will rank equally with other similar government obligations.

Sri Lanka had defaulted on its foreign debt for the first time in May 2022 amidst a severe economic crisis, exacerbated by a heavy debt burden and dwindling foreign exchange reserves.

In response to these developments, Sri Lankan USD bonds rose on Wednesday, with the June 2025 issue climbing 0.75 cents to 65.875 cents on the dollar. (Reuters)