Ukraine’s debt restructuring plan, announced last month, is both revolutionary and evolutionary. The agreement to restructure $18bn of privately held government debt stands in stark contrast to Greece’s nearly apocalyptic showdown with the European Union this year and Argentina’s simmering standoff with holdout creditors. Ukraine’s deal showcases two important evolutionary steps: a rare case of successful investor-state coordination and the latest application of equity principles in sovereign finance.
Today, Ukraine’s parliament votes on this milestone deal. Facing an internal armed conflict and a deep economic recession, Ukraine is in dire need of debt relief. The restructuring terms include a 20 per cent haircut and a four-year maturity extension, providing Ukraine with much-needed breathing room. Yet the agreement’s favourable terms for creditors saw Ukraine’s sovereign bonds rally immediately following its announcement. Major turning points—east or west, deal or default—hang in the balance with today’s vote. But the fate of Ukraine’s debt deal also has serious implications for the broader world of sovereign finance. Read more
Last month Ricardo Hausmann, a normally mild Harvard academic, set off the equivalent of a financial bomb. The economist suggested that Venezuela had already defaulted on many of its suppliers, its oil service contractors, and its citizens. So who or what might come next?
When Hausmann suggested Wall Street, the market reaction was huge. Indeed Venezuelan bonds, undercut by the falling oil price, have been dropping ever since. Yet it turns out that Venezuela’s latest default has been, in fact, to China. Given that Beijing is one of Caracas’ closest allies, this is surprising. It is also bullish for Wall Street. Read more
By José Antonio Ocampo of Columbia University
On September 9, the United Nations General Assembly approved a resolution to launch negotiations on a multilateral framework for sovereign debt restructuring. The vote was overwhelmingly in favour of the resolution: 124 in favour vs 11 against with 41 abstentions. But it was a deeply divided one. It was essentially approved with the votes of developing countries, but the no votes included the US, Japan, Germany and the UK; the remaining European Union members abstained.
This is, of course, a continuation of the saga of the absurd decisions of a New York judge on Argentine debt: the decision to force the country to pay on the original terms to holders of bonds not tendered at the 2005 and 2010 renegotiations, the ratification of this verdict by the New York Court of Appeals, and the decision of the US Supreme Court not to consider an appeal by Argentina against the latter decision. Read more
By Marcelo Etchebarne Mihanovich of Cabanellas Etchebarne Kelly
Two cases pending in US federal courts show how sovereign and sub-sovereign borrowers in distress can get very different treatment.
Detroit, with declared debts of approximately $18bn, filed for bankruptcy in July 2013. On December 3, it was declared eligible for protection under Chapter 9 of the US Bankruptcy Code. Judge Stephen Rhodes of the US Bankruptcy Court noted that Detroit had negotiated in bad faith with its more than 100,000 creditors; however, he also expressed the view that negotiation was impracticable. Read more
It produced one of the most iconic cars ever and, for a period in the 20th century, dominated the Indian auto industry. But time is ticking for Hindustan Motors, the maker of the venerable Ambassador, to turn itself around.
Shares in the group dropped 8.1 per cent on Friday to Rs7.95, as talk of restructuring and foreign investment sent investors into a spin. Read more
As beyondbrics wrote on Wednesday, the Hungarian government’s latest austerity package includes a “tax” on local government bonds held by banks that looks suspiciously like a haircut.
Gabor Orban, state secretary at the finance ministry, responded on Thursday to a beyondbrics request for comment. He says the ministry had thought of giving bondholders a haircut but pulled back for “technical reasons”. His full comment follows. Read more
Mihaly Varga, Hungary’s finance minister (pictured) who recently promised “an end to unpredictability” for the banking sector, is a man with a conscience.
That’s probably the best explanation for why, when he revealed the latest of Hungary’s austerity packages on Monday, he avoided the biggest bombshell of the lot. That left assiduous journalists to find later, on the government website, that Hungarian banks that hold municipal debt being taken over by the state will pay a 7 per cent tax for the privilege.
How come? Why, the state is a more reliable debtor, of course, says the finance ministry, so banks can release provisions as a result of the transfers. Read more
Jamaica might be best known for its sunny beaches, reggae music and world class athletes such as Usain Bolt. But this Caribbean island nation of 2.9m is increasingly garnering international attention for something less boast-worthy : its crippling debt crisis.
In a television address late Monday, the country’s prime minister Portia Simpson Miller said the government will launch a restructuring of its local debt – its second in three years – as it looks to stave off a “serious economic crisis” and secure a credit line from the IMF. Read more
By Timothy Ash of Standard Bank
New issues are finally coming out of the woodwork and pricing very, very aggressively. It’s set to be a feeding frenzy across EM, and any EM issuer worth its salt, or its rating, is likely to want to get some cash (as much as possible) in the bank.
I am tempted to say that almost any issuer, whatever the name and fundamentals, with a bit of carry could tap this overbaked and pretty ridiculous market. Read more
The ballyhoo over a New York court ruling ordering Argentina to pay $1.3bn to holdout creditors, has raised questions over whether Ecuador could also be dragged to court by so-called vulture funds.
Unfortunately for some bondholders, but luckily for Ecuador’s government, it seems very unlikely, at least according to some commentators consulted by beyondbrics. Read more
No big surprises in the flurry of briefs in Argentina’s debt holdout saga then.
A quick recap: a US appeals court on October 26 upheld a court ruling by New York Judge Thomas Griesa that opened the door to Argentina making some payment of the “holdout” creditors led by Elliott’s NML Capital, which spurned its 2005 and 2010 restructurings of the nearly $100bn on which it defaulted in 2001. Judge Griesa had ruled on the basis of an “equal treatment” clause. Read more
Here are a few back-of-the-envelope things to think about as we wait for Argentina to spell out its position in its brief to the court in the holdout saga on Friday:
1. This is, remember, a case in which there could be a technical default if money Argentina uses to pay the holders of bonds it exchanged in debt swaps in 2005 and 2010 – when it restructured nearly 93 per cent of the $100bn on which it defaulted in 2001 – is diverted to pay the litigants in the New York case, led by US hedge fund Elliott. Read more
By Ghassan Chehayeb of Exotix Limited
A showdown is brewing in Sharjah, the UAE’s third largest emirate. Sharjah-based Dana Gas, a natural gas-focused E&P company, has a $920m sukuk due in five months, yet the issuer is far short of the required funds to repay the obligation. The sukuk’s price has fallen from above 95 in July 2011 to just 68, as restructuring headlines continue to spook investors. Read more
The lawyers have been busy this week in Dubai’s crowded debt-restructuring market.
First, debt-laden ship repairer Dubai Drydocks escaped from a group of its creditors – by seeking insolvency protection in the emirate at a special tribunal.
Then on Thursday, Dubai International Capital, the troubled private-equity vehicle controlled by the ruler’s holding company Dubai Holding, finalised a $2.5bn restructuring deal with lenders. Read more
Bahrian’s Arcapita bank has thrown creditors a bit of a curve ball. The bank has decided to file for bankruptcy protection in the US after talks over an upcoming bank maturity of $1.1bn on March 28 broke down.
It’s the first time a Gulf company has sought Chapter 11 refuge in US courts, and creates a new level of public scrutiny for the bank – as well as an uncertain outcome for those wanting their money back. Read more
When Magyar Telekom, under its earlier name of Matav, moved into the Balkans after the turn of the millennium, the rationale was straightforward enough. As a former communist-era monopoly turned around under the hand of majority owner Deutsche Telekom in the previous decade, the Hungarians were well-quipped to do a similar restructuring job on incumbents in the Yugoslav successor states. Read more