Bondholders Mull Joining Poor-Country Debt Waiver as Calls Grow

LAGOS (Capital Markets in Africa) — Private creditors are exploring ways to join an initiative to waive debt payments from poor countries, potentially opening a new chapter in efforts to avert sovereign defaults in the wake of the coronavirus pandemic.

Creditors will work in the coming weeks on reference terms for voluntary private-sector participation in debt-relief efforts, the Paris Club and the Institute of International Finance, a trade group that represents the world’s biggest banks and financial institutions, said.

“Private-sector creditors expressed deep appreciation for the challenges facing the most vulnerable countries,” the Washington-based IIF and the Paris Club said in a joint statement after a meeting with delegates representing official and private debt holders… “There was broad agreement on the importance of active collaboration between official and private creditors on this vital initiative.”

Although the IIF highlighted the challenges to secure a temporary suspension, the meeting could mark a milestone in offering blanket relief to low-income countries struggling through a pandemic that has ground the global economy to a halt. The Group of 20 leading economies agreed earlier this month to suspend $20 billion in bilateral debt payments until the end of the year and the International Monetary Fund has granted a debt waiver for at least 25 countries.

Africa, where many of the world’s poorest countries are located, is working on its own “Brady Plan” to convince bondholders to exchange sovereign debt for new concessional paper. No African government has publicly stated it wants to waive payments on Eurobonds or other commercial debt because of the coronavirus crisis, through Ethiopia’s prime minister said debt relief for Africa should include all types of debt.

Any plan to seek a voluntary reprieve from private creditors, however, faces an uphill battle. Unlike when the original Brady Plan was launched to rescue an indebted Latin America in 1989, debt is now split among hundreds of creditors ranging from New York hedge funds to Middle Eastern sovereign wealth funds and Asian pension funds.
Some investors are also wary of a standstill on funds needed to keep their portfolio afloat.

The IIF estimates the world’s poorest countries have some $140 billion in general government debt-service obligations due to the end of the year, including $10 billion in foreign currency.

Source: Bloomberg Business News