Newsroom: Article

Emerging Market De(bt)velopments

La Générale des Carrières et des Mines (Gécamines), the troubled government-controlled mining company of the Democratic Republic of Congo (DRC), seems to be getting through the crucial stages of its restructuring efforts. Under pressure from the World Bank, the French consultancy firm Sofreco was hired in 2004 to manage a full scale restructuring of the company including its unsustainable debt level. Sofreco recruited the Canadian Paul Fortin in 2005 to act as the managing director of Gécamines during the process. One of the main achievements of Fortin has been to very gradually recommence the copper production process, with production increased by 29% to 22,000 tonnes in 2006. Further increase to 30,000 tonnes is expected in 2007. Gécamines has around 10% of the world’s copper reserves, which given current high copper prices, means the company’s developments are closely followed by the markets.

Fortin has furthermore managed to win the trust of the company’s employees, who had not seen regular salary payments for quite some time. A serious crisis erupted in February of this year after Sofreco fired Fortin. Employees of Gécamines immediately called for a company-wide strike and Congolese government officials likewise supported Fortin, leading to his reappointment three days later.

Gécamines is reported to have a total of $2.4bn in debt outstanding, nearly all overdue and for a large portion trade-related. Fortin had already made several announcements on his plans to restructure the debt of Gécamines. He indicated he proposed transferring a part of the company’s debt to the state, given that it had a sovereign character, whereas he also referred to anticipated support of official donors including the Paris Club. He furthermore anticipated paying commercial creditors “between 10% and 12% of their outstanding amounts”. “I’m going to make them a low settlement proposal because there is no alternative,” Fortin announced at the Mining Indaba conference in Cape Town. After completion of the debt restructuring, the path would be clear for an initial public offering (IPO) in either the US or the UK, he said. Within a matter of weeks, advisors would be asked to submit proposals on dealing with the debt. According to Fortin, the successful advisor was likely to be given the mandate to lead the
company’s float.

This seems overly optimistic, not only on timing but also on the targeted debt-cancellation levels as signalled by Fortin. Only very recently a large German trade debt reportedly settled for 20% of principal and interest. In Omni Bridgeway’s opinion, this is the lower limit of any successful ‘amicable’ debt-restructuring negotiation with commercial creditors.

Holders of Gécamines or DRC trade debt, claims or awards are invited to contact Omni Bridgeway.

For brokerage requests or more information on specific debts, debt conversions and restructurings, please contact:
- Raymond van Hulst on vanhulst@omnibridgeway.com
- Heleen Rijkens on rijkens@omnibridgeway.com

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