Struggling Maldives sovereign bond rallies as country vows to avoid default

Concerns that cash-strapped Maldives could become 1st country to default on Islamic sovereign debt had pushed bond - its only listed international fixed-income instrument - to a record low last month

The Maldives' sole sovereign bond extended a multi-day rebound on Thursday as the crisis-threatened Indian Ocean archipelago nation vowed to avoid default and traders cited potential fresh support from the likes of India.
 

The Maldives' 2026 Islamic Bond, or sukuk, jumped more than 3 cents to bid just under 75 cents on the dollar in its biggest daily gain since early 2023, Tradeweb pricing showed.
 

Concerns that the cash-strapped Maldives could become the first country to default on Islamic sovereign debt had pushed the bond - its only listed international fixed-income instrument - to a record low late last month.
 

Rating agency Moody's had flagged those fears on Wednesday as it became the latest firm to downgrade the country.
 

Thursday's rally came after the Maldives central bank responded with a statement rejecting the worries.
 

"There remains no doubt that the Maldives Monetary Authority (central bank) and the Government of the Maldives, together with all related government institutions, will be able to meet all future external debt obligations," it said.
 

It added that a $25 million payment next month would be "met in full by the due date".
 

Moody's had warned as part of its downgrade that the $440 million the Maldives currently has in reserves was "significantly below" the government's external debt service needs of around $600 million to $700 million in 2025 and over a billion dollars in 2026.
 

Much of the money it owes is to jostling regional powers India and China, and market participants said Thursday's bounce had also been fanned by talk of additional support.
 

"They (Maldives authorities) came out and said they are going to pay their commitments for the coming months and there is also talk of another RBI (Reserve Bank of India) swap line," said Usman Ahmed, FIM Partners' Head of MENA and Sukuk.
 

The RBI provided a credit line worth $200 million in late 2022 which the Maldives central bank described at the time "as a backstop line of funding". That credit line has now expired, however.
 

The Indian central bank declined to comment when asked by Reuters about the possibility of a fresh swap line.

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