Blitz Bureau
NEW DELHI: India has given the Maldives a bailout that will help the island nation avoid an unprecedented sovereign default on an Islamic form of debt next month.
India’s biggest state-owned bank agreed to lend another $50mn to the Maldives, India’s High Commission in the country said in a statement last week, days before the archipelago is due to pay a roughly $25mn coupon on an Islamic sukuk, according to a report in Financial Times.
Sukuk follow Islamic principles in shunning traditional interest payments and instead offer creditors a share of profit from an underlying financial instrument. No government has ever skipped a sukuk payment, but investors have grown concerned in recent weeks that the Maldives would break new ground in a market tapped by countries including Egypt, Pakistan, South Africa and the UK.
Heavy borrowing for infrastructure projects has plunged the Maldives deep into a foreign exchange crisis despite a recovery in tourism to the island paradise.
The Maldivian sukuk traded at about 78 cents in the dollar on Friday, a recovery from a low of 70 cents after Fitch Ratings downgraded the country’s credit rating deep into junk territory this month. The State Bank of India, which had previously lent the Maldives $50mn, also rolled over a short-term bond in May, underlining how the archipelago is relying on stop-gap rescues by New Delhi, while the Government of President Mohamed Muizzu looks for a lasting solution to the crisis.
The country still has to find a way to repay more than $500mn in debt next year, and $1bn in 2026, when the $500mn sukuk will come due. The loan from the SBI, which has taken the form of rolling over a one-year treasury bill, is bigger than the Maldives’ net international reserves as of last month. These dwindled to $48mn, out of gross reserves of $470mn, as the country faces high debt repayment bills. India is one of the country’s biggest creditors, alongside China.
