CONFIDENTIAL
V
New Market Borrowing
11 A rare example of overseas non-bank private investors being prepared to buy a
debt-troubled ldc's obligations has been provided by the issue of a DM 100 m 5-year
eurobond by Venezuela. While the bond was primarily targeted at local financial
institutions to help meet regulatory requirements, and to holders of previous debt
that had matured, some private German investors were attracted by the very high
spread (320 basis points over that paid by prime borrowers). By comparison recent
$ issues by the Oil and Natural Gas Commission of India, and Turkey (in the latter
case a 10-year bond) carry spreads of 114 and 183 basis points respectively over US
Treasuries. (In February, a $100 mn 5-year issue for Venezuela carried a spread of
350 bp over Treasuries.)
12 Venezuela (which has never received new money from the banks in any post 1982
restructuring) is attempting to raise $1 bn of bonded debt secured by future oil
sales. The bond is to be structured to avoid infringing negative pledge clauses
and the implied subordination of existing creditors will be unpopular; but the
banks (who have received principal repayments totalling $2 bn since 1982) have less
of a stick to wield. If the issue goes ahead successfully, it may serve as a model
for other debtors frustrated in their attempts to obtain new bank credits.
Debt of the Poorest
13
The menu of debt relief options has been agreed by the Paris Club and already
implemented for Mali and Madagascar. The three main elements relating to debt on
commercial terms are as described in the September WDR. Aid credits are being
rescheduled over 25 years, 14 grace, at an interest rate at least as concessional as
the original loan. The package reflects the pragmatic course steered by the Club's
Secretariat. Relief will not necessarily be restricted to African countries and
other qualifying criteria have not been precisely defined. (However, a Bolivian
attempt to get at least Toronto terms was not conceded at the Club's November
meeting.) Most countries (including the UK, Japan and Germany) have offered
interest rate relief while France has effectively forgiven a third of its claims
(debt service on these will be cancelled as they fall due). In both cases debt has
been rescheduled over 14 years, 8 grace. The US, Spain and Belgium have opted for
25 year reschedulings with 14 years grace. The Netherlands also offered a longer
rescheduling to Mali but may choose one of the other options for other countries.
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