Newsroom: Article

Emerging Market De(bt)velopments

During the past decades, Turkmenistan qualified as one of the most obscure places in the world, mainly because of its autocratic ruler Saparmurat Niyazov. On 21 December last year, completely unexpected to the outside world, Niyazov died, triggering expectations and speculations that a successor may normalise the behaviour of the gas-rich country. In early February, Gurbanguly Berdymukhammedov, the former deputy prime minister, was elected as the new president and it remains to be seen if any changes will occur.

Turkmenistan is a large exporter of natural gas, and the country’s natural gas reserves are considered among the biggest in the world – although reliable reserve numbers are unavailable. An estimated 80% of the foreign income of the country is related to the oil and gas industry and the cotton industry. For that reason, most of the attention at the presidential inauguration was focused on indications of the new president’s preferences in the geo-political gas arena. Whereas Niyazov was increasingly focusing on China and Iran, Berdymukhammedov seems to prefer Russia and Gazprom as his allies. Under the rule of Niyazov, Turkmenistan incurred a substantial amount of external sovereign debt. Economic figures on Turkmenistan are scarce and notoriously inaccurate and official statistics are treated as state secrets, but estimates on the government’s total external debt range from approximately $2.5bn to $3.5bn. The Central Bank reportedly has no official reserves of any significance, whereas a Foreign Export Reserve Fund – exclusively controlled by the president – is reported to hold around $2bn (in foreign accounts). With an estimated GDP in 2005 of $6.8bn and exports estimated at $4bn, the debt-servicing statistics of Turkmenistan indicate a heavy debt burden, but not necessarily at unsustainable levels.

There are substantial amounts of defaulted trade debts in the name of the government directly, or in the name of any of the state companies.
In the agricultural sector, there are quite a number of awards, claims and debts from foreign firms dating from 1996 onwards, often related to Turkmenistan’s chronic overestimation of its annual cotton crop (leading to the inability to deliver on forward contracts). These debts often amount to between $3m and $10m each, including approximately 100% of PDI.

In the oil and gas sector, claims, defaulted debts and awards against Turkmenistan are often caused by irrational and sudden changes in priorities and sympathies of the Turkmen government (ie, president). Such changes lead to cancellations and breaches of contracts or even expropriations of assets. The most noteworthy example of this is that of the Argentinean oil company Bridas, which holds a $500m arbitration award against Turkmenistan for expropriation of its assets.

Defaulted Turkmen trade debt is currently quoted at between 25% and 30% of principal, although trading takes place only very occasionally.
Defaulted Turkmen trade debt remains among the highest risk debts, but the inauguration of the new president may well create a change of policy
and momentum to achieve a solution, rescheduling or restructuring of the defaulted debts in the medium term. The first notable actions of the new president, Berdymukhammedov, are somewhat hopeful: he has allowed moderate access of the Turkmen to the internet and he has announced significant improvements to the education system, which was nearly completely dismantled under Niyazov.

Holders of Turkmen debt, claims or awards are invited to contact us.

For brokerage requests or more information on specific debts, debt conversions and restructurings, please contact:

Omni Bridgeway Emerging Markets BV
Tobias Asserlaan 5, 2517 KC
The Hague, The Netherlands.
Tel: (+31) 70 3384343, Fax: (+31) 70 3523469
Raymond van Hulst on vanhulst@omnibridgeway.com
Heleen Rijkens on rijkens@omnibridgeway.com

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