Cote D’Ivoire has reached a preliminary deal on terms of an offer to restructure about €2,2-billion of defaulted sovereign debt with the London Club of commercial creditors, the two sides said on Monday.
Holders of the six Brady bonds will be able to swap the debt for a new United States dollar denominated bond maturing December 31 2032.
”The Republic of Cote d’Ivoire will invite holders of Brady bonds to exchange such bonds for a new US dollar-denominated bond, having a term of 23 years and a six-year grace period,” Cote D’Ivoire and the creditors said in a joint statement after a meeting to sign the preliminary agreement.
”The exchange will occur no later than March 31 2010.”
The deal follows an agreement with the Paris Club of sovereign creditors earlier this year.
”The average life of 15 years seems to be in line with expectations and the indicated debt relief of a further 20% should be consistent with the demands of the International Monetary Fund and Paris Club,” said Richard Segal, emerging markets director at Knight Libertas.
Cote D’Ivoire will offer a discount of 20% on the exchangeable debt. There will be 34 semi-annual payments on the new bond, starting from June 30 2016, each representing a percentage of the nominal value of the new bonds.
Interest will begin to accrue from December 31 2009 whether the closing date occurs before of after such a date.
Brady bonds are named after then US Treasury Secretary Nicholas Brady, who helped international monetary organisations institute programmes of debt-reduction in the 1980s. Defaulted loans were converted into bonds with US zero-coupon Treasury bonds as collateral.
The outstanding debt consists of three euro-denominated and three dollar-denominated bonds maturing in 2018 and 2028.
Lazard are financial advisers on the restructuring deal.
Political uncertainty
Cote D’Ivoire defaulted on the debt in 2000. Talks on the restructuring started in 2008. Charles Koffi Diby, Cote D’Ivoire’s Economy and Finance Minister said the negotiations had been difficult.
”Cote D’Ivoire will honour its commitments so I invite the holders of the Brady bonds to massively subscribe to the new bond, which will be on the market soon,” he said at the signing.
Cote D’Ivoire, the world’s biggest cocoa exporter, has suffered as an investment destination because of political instability following a 2002/03 war.
Political instability has dogged Cote D’Ivoire’s efforts to boost its economy. Elections have been repeatedly delayed due to rows about disarmament and voter identification. A poll is now set for November 29, but there is concern it will be delayed again.
Nevertheless, the promise of debt relief and a revival of interest in frontier markets as the global downturn eases could make Cote D’Ivoire’s restructured debt attractive.
”Some observers had been sceptical that the government would be able to successfully negotiate a deal with commercial creditors so close to the elections, so this is good news,” said Knight Libertas’ Segal.
”If as indicated, all the defaulted Brady bonds will be wrapped into one single bond, liquidity in the successor instrument should be reassuringly high.”
Thierry Desjardins, chairperson of the London Club committee of private creditors for Cote D’Ivoire said there was always a possibility some creditors would not participate in the resctructuring.
”But there are no elements that would allow us to think that,” he said.
Cote D’Ivoire agreed a debt restructuring with Paris Club sovereign creditors earlier this year, involving the cancellation of $845-million in debt, the rescheduling of $1,23-billion and the deferral of debts worth $2,61-billion.
It is also part of the Heavily Indebted Poor Countries (HIPC) initiative, a debt relief programme managed by the IMF and the World Bank.
The HIPC initiative aims to help Cote D’Ivoire clear about $3-billion of its external debt, which was estimated at $14,3-billion at the end of 2007, according to the IMF.
Cote D’Ivoire qualified for some relief in April but will qualify for more if it reaches so-called completion point by implementing a broad set of reforms over the next year. — Reuters