LONDON: Sri Lanka’s bondholders signed off on the government’s proposal to restructure its $12.55 billion of international bonds, a key step in finalising the island nation’s debt overhaul.

Final results showed holders representing 97.86% of the outstanding principal on the existing bonds voted in favour of the plan, which will swap Sri Lanka’s defaulted bonds for a series of new fixed income instruments, the government said in a statement dated Dec. 16.

Sri Lanka defaulted on its foreign debt for the first time in May 2022 due to its high debt burden and dwindling foreign exchange reserves.

With the finalising of the bond exchange, Sri Lanka will become the fourth country to conclude a restructuring of its bonds this year, following in the footsteps of Ghana, Ukraine and Zambia.

The South Asian island nation’s new instruments include a governance-linked bond, which offers a 75-basis-point reduction in the interest rate payable if Sri Lanka meets certain governance targets, and several bonds linked to economic performance.

A breakdown of the data showed investor support across all bar one of the bonds - the 2022 maturity - passed the threshold required that would see the whole bond swapped out in its entirety for the newly created instruments.