(Bloomberg) -- Sri Lanka is working on a proposal to exchange its existing dollar bonds for new securities, a step that would help the crisis-plagued South Asian country secure more international financial aid. 

The Ministry of Finance said on Thursday that it was inviting banks to submit proposals for the transaction. Financial institutions would work alongside Lazard Frères SAS and Clifford Chance LLP, according to a statement. 

Almost two years after defaulting on its debts, the country is still locked in negotiations with its creditors. It must make progress on the restructuring talks in order to unlock a $337 million payout from the International Monetary Fund, for which it already won initial approval. 

“This does signal a Sri Lanka deal might be getting close,” said Charlie Robertson, head of macro strategy at FIM Partners.

Read: How a Ruling Family Tipped Sri Lanka Into Economic Free Fall

Sovereign distressed debt exchanges have been on the rise since the pandemic, as nascent economies struggle with spiraling interest rates, according to S&P Global Ratings. They typically involve only local-currency debt and not overseas borrowings. 

Argentina has been heavily reliant on such swaps to manage its finances after it defaulted on its international bonds in 2020. 

Read: Eurobonds Not Targeted in Nigeria Debt Rework, Minister Says

In the case of Sri Lanka, protests over soaring inflation, shortages of food and fuel toppled the government in 2022, and led to its first sovereign debt default since gaining independence from Britain. 

Sri Lanka is hopeful it can resolve debt restructuring issues in the second quarter and a “positive outcome” for discussions with bondholders in London, junior finance minister Shehan Semasinghe said earlier on Thursday.  

Just a few days ago, Zambia cleared a key hurdle that’s delayed its three-year effort to escape debt default when it agreed to restructure $3 billion in eurobonds. Meanwhile, Ghana is also set for talks on the restructuring of about $13 billion of defaulted debt, according to its finance minister. 

“After the good news on Zambia, investors are hoping that perhaps all three of Ghana, Zambia and Sri Lanka might indeed be wrapped up by the end of June, as each have targeted,” Robertson said. 

 

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