February 1, 2011 / 10:33 AM / 9 years ago

UPDATE 3-Ivory Coast defaults on bond, trade nervous

* Bond dips briefly to record low of 33.4 on the dollar

* Investors say missed coupon amounts to default

* Bond later rises, some investors hold out payment hopes

(Adds Ouattara camp, JPMorgan comment)

By Carolyn Cohn

LONDON, Feb 1 (Reuters) - Ivory Coast’s $2.3 billion bond due 2032 hit a record low on Tuesday after the world’s top cocoa grower missed a coupon payment, but the price then rebounded as investors speculated about when they might get paid.

Ivory Coast, gripped by a post-election power struggle that has triggered lethal street violence and is paralysing the economy, missed an end-of-2010 deadline for the $29 million payment but had a grace period until the end of January.

The bond XS0496488395=R fell three cents in early trade to a record low of 33.4 cents on the dollar, giving a yield of 18.123 percent according to Reuters data. It later rebounded, and was trading at 39.75 by 1600 GMT.

“Probably the buyers out there are the long-short (hedge fund) guys who are seeing value,” said one fund manager.

“Real money investors are in already and those who aren’t are not going to buy now.”

Late on Monday, financial trade group EMTA recommended the bond trade from Feb. 1 without accrued interest, saying it had proposed the measure after contacts with major market players — a move that “confirms the default from a legal standpoint,” said Richard Segal, director of emerging markets at Knight Capital.

In Addis Ababa, the official Gbagbo appointed as his foreign minister repeated his camp’s line that the coupon would be paid at some point, but without giving a firm timeline.

“We have the money of course, as we’ve been paying our civil servants. I don’t know when, but we’ll definitely pay,” Alcide Djedje told reporters on the margins of an African Union event.

Stuart Culverhouse, the chief economist at frontier markets brokerage Exotix, said the comment may have triggered the bond’s recovery.

“That might have been a contributing factor,” he said. “But I still think the prices will fall from where they are as the default has now crystallised and people are wondering what to do next.” A spokesman for rival candidate Alassane Ouattara, who won a Nov. 28 poll according to U.N.-certified results, but to whom Gbagbo has refused to concede defeat, said his government cannot pay until it takes control of Ivorian state funds from Gbagbo at francophone West Africa’s regional central bank.

“We don’t have access to the central bank because Gbagbo hijacked it. There is no central bank office in Ivory Coast, so no way we can get access to the funds,” Patrick Achi said, refering to a raid on the bank’s Abidjan branch by forces loyal to Gbagbo last week that prompted the bank to close it.

The seizure was a response to the West African Economic and Monetary Union decision to shut down Gbagbo’s access to Ivorian funds held at the Senegal headquarters of the central bank.

“If someone was able to have access to the bank, we could pay, but we don’t,” said Achi.

He said he did not know whether the payment could be authorised through the regional bank’s main office in Senegal.


Creditors could in theory accelerate the bond — ask Ivory Coast for early repayment — but did not do so after Ivory Coast previously defaulted on its debt, in 2000.

“I don’t see any point in accelerating,” said Sergei Strigo, head of emerging market debt at Amundi Asset Management.

“We shall hold the bonds. It’s a political issue and not an issue about ability to pay. The coupon is very small and the bond maturity is long.”

JPMorgan analysts said in a note that the bond would remain in its benchmark indices, used by emerging fixed income investors to track their performance, adding: “The coupon payment has become another bargaining tool for rivals to use to secure control of the presidency.”

Many investors held the Ivory Coast debt because of its inclusion in the indices. They are watching, however, to see if Ivory Coast defaults on any other debt, including payments to multilateral lenders and domestic debt.

“The fact they might actually default on the T-bills is problematic for the rest of the region,” said Samir Gadio, emerging markets strategist at Standard Bank.

The other seven countries in the West African franc zone are particularly worried about the financial and economic implications of the power struggle, regional officials said on Tuesday. [ID:nLDE7101B0] (For FACTBOXES on Ivory Coast and other emerging sovereign defaults, see [ID:nLDE70U1H9] [ID:nLDE70U1RR]) (Additional reporting by Sujata Rao in London; Tim Cocks in Abidjan; Mark John in Dakar and Aaron Maasho in Addis Ababa; writing by Mark John; editing by Catherine Evans)

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