Newsroom: Article

Emerging Market De(bt)velopments

The Republic of the Congo –aka Congo Brazzaville- is nearing the end phase of a London Club-style restructuring of part of its commercial debt, mostly bank loans. The amount of debt eligible for this restructuring amounts to approximately USD 2.3 billion, of which close to USD 2 billion involves past due interest. The restructuring will take the form of a debt-for-debt exchange, with new exchange-tradable bonds offered in return for the cancellation of the old debts.
The new bonds are offered with 22-year amortisation schedule, and interest rates implying substantial concessions as the coupon rates are significantly below market interest rates. Approximately USD 500 million in new bonds are offered in exchange, which will be valued at roughly 50% in the markets, taking into account the concessional interest rate. Overall debt cancellation therefore ends up between 85% and 90%.
The Heavily Indebted Poor Countries’ common reduction factor for the Republic of the Congo has been the benchmark for the overall debt cancellation implied in the debt restructuring. The common reduction factor was based on a debt sustainability analysis conducted in connection with the HIPC decision point. However, this debt sustainability analysis was based on 2004 oil prices, but oil prices have increased substantially since then.
Given that the Republic of the Congo is the fifth largest oil producer in sub-Saharan Africa, the oil price rise will have improved the debt sustainability figures considerably. The positive implication of this is that it adds substantial certainty in the short to medium term to the country’s capability to service the new debt. The flip side of the coin is that the proposed debt cancellation may seem overly generous given the country’s current economic situation.
The key indicator of success for this debt restructuring is related to acceptance of a number of litigious creditors holding eligible debt for this restructuring, with Kensington being the most notable one holding debt with a face of more than value over USD 100 million. Given the cancellation levels of between 85% and 90%, it is unlikely that the offer will be accepted easily by those creditors.
Irrespective of the overall acceptance percentage of the London Club creditors, this London Club style restructuring clears the way for a solution to the holders of defaulted trade debt excluded from the London Club restructuring. The cancellation level will be quite similar, but the form may be different. We advise holders of such defaulted trade debt to organise their files in preparation for such a situation.

Holders of Congo trade debt are invited to contact us.

For more information and requests regarding specific debts, debt purchase, brokerage, conversions and restructurings, please contact:
R. van Hulst: vanhulst@omnibridgeway.com
H. Rijkens: rijkens@omnibridgeway.com

Attached please find a sample of emerging market debt pricing. Please note that the included prices are sample prices. A copy of the latest prices can be obtained by sending your contact details to info@omnibridgeway.com.
If you are interested in receiving the prices on a bimonthly basis, please indicate and send your contact details to info@omnibridgeway.com.