Global Investing

Forgive and forget in emerging debt?

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If you’re an emerging market borrower, it seems like it’s a great time for sorting out those old troublesome debts as pumped-up yield appetite in the fixed income universe encourages another bout of selective amnesia among creditors and bond investors.

Serial defaulter Ivory Coast met investors in London this week, next stop New York later today, to discuss a new schedule for missed coupons on its $2.3 billion bond due 2032.

The West African country defaulted on the bond early last year during political unrest which later broke into civil war. That bond was launched only in 2010 as a restructuring of previous debt on which Ivory Coast defaulted in 2000. If that isn’t confusing enough, the 2000 default was of  U.S.-underwritten Brady debt, which  itself was a repackaging…

Meanwhile, Kazakh bank BTA, owned by the country’s sovereign wealth fund, this month agreed a $11.2 billion debt restructuring deal, after it defaulted earlier this year. The sovereign wealth fund, Samruk-Kazyna, had already stepped in to help the bank with a restructuring in 2010 when it defaulted during the global financial crisis. So this was the second default in the space of two years.

But demand is such for high-yielding emerging market debt, particularly in commodity-rich countries, that investors are likely to forget the past as they lap up the present juicy yields.

Ivory Coast’s bond has leapt since the world’s top cocoa grower said earlier this year it would resume coupon payments on its bond. The bond, which starts paying back principal ahead of maturity, has soared 40 cents on the dollar this year and 5 cents in the last week, when news emerged of meetings to discuss three missed coupons and an exchange of other defaulted debt.

Belize’s bond: not so super after all

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Belize’s so-called superbond has not proved to be a super investment proposition.

The country has set out proposals on how it might restructure the bond, which bundled together several old debts (hence its name) and the ideas have been greeted with horror by investors. Essentially, the government wants to reduce the principal of the bond by almost half while extending the maturity by 13 years, according to one of the proposals.  Interest rates on the issue, at 8.5 percent this year, could be cut to a flat 3.5 percent. Or investors could accept a 1 percent rate that steps up to 4 percent after 2019.

Markets had been expecting a restructuring ever since Prime Minister Dean Barrow said in February the country could not afford to keep up debt repayments. The bond duly fell after his comments but picked up a bit in recent months after Barrow assured investors the restructuring would be amicable.  Investors holding the bond are now nursing year-to-date losses of 24 percent, according to JP Morgan.