December 31, 2010 / 3:10 PM / 9 years ago

Ivory Coast on verge of missing Eurobond payment

ABIDJAN/LONDON (Reuters) - Ivory Coast stood hours away from missing an international debt payment on Friday, with one of the crisis-torn country’s rival governments saying the cash had run out and the other offering no guarantees.

One Euro coins are pictured after being minted at the Austrian national mint in Vienna, April 8, 2009. REUTERS/Leonhard Foeger

The West African state has been plunged into political turmoil by a dispute between Laurent Gbagbo and rival presidential claimant Alassane Ouattara over who won a November 28 second round poll, and each has named a parallel administration.

The first payment of nearly $30 million on a $2.3 billion Eurobond is due by the close of business in New York on Friday, though a 30-day grace period means the country would not be in default until Feb 1.

Ivory Coast’s debt has already been restructured twice because of past defaults, and any repetition would leave it frozen out of international debt markets.

A spokesman for Ouattara’s government said the coupon would not be paid on time because of a lack of money, while a spokesman for Gbagbo’s government said it was not yet clear whether the payment would be made.

World leaders have heaped pressure on Gbagbo to step down after electoral commission results showed he lost to Ouattara by a near 8 percentage point margin, but he has resisted and retains control of the military and of government buildings.

A bitter power struggle has left more than 170 people dead and led the World Bank to freeze aid of more than $800 million. U.N. officials fear huge ethnic bloodshed if civil war re-starts.

The West African regional central bank last week cut Gbagbo off from Ivorian accounts, potentially worsening a cash crunch that could make it hard for him to pay wages of civil servants and soldiers who back him, let alone meet coupon payments.

But it was not clear whether the cutoff had yet taken effect, or who was in charge of those accounts at present. Sources at the central bank in Senegal would not comment.

The Eurobond was trading at a yield of over 15 percent, compared with under 10 percent before the election dispute.

“The question is whether the coupon will be paid but the problem with the payment is also that we don’t know who the authorised signatories are,” said Jeremy Brewin, Portfolio manager at Aviva Investors in London.


Patrick Achi, spokesman for Ouattara’s government, operating out of a lagoon-side hotel under guard of heavily armed U.N. peacekeepers, said the payment would not be made.

“No one will pay it because we don’t have the money to pay it,” Achi said by telephone. “The issue is not who has access to state accounts, but that you don’t have the money. The gap is huge. Why? Because all the money has been used to pay salaries.”

Achi said the cash available was barely enough to cover civil servants salaries, so paying debt, including to regional markets, would be impossible.

An official at Gbagbo’s finance ministry, who could not be named because he was not authorised to speak, said it was not yet clear whether the payment would be met.

“We don’t know. We will be able to say maybe later in the day. It’s really difficult to say (if the coupon will be paid). I wish I could,” he said by phone.

Creditors will start negotiations with Ivory Coast in January if it fails to pay, a debt negotiator said on Tuesday.

The election was meant to end years of instability but has raised the risk of another civil war.

Brewin said he would be interested in buying back the debt, even if defaulted, “if the bond goes below what we would consider recovery value.”

“You get used to instability in emerging markets ... There’s actually lots going for the Ivory Coast economy,” he said.

Another fund manager said officially it would still be Gbagbo’s finance minister expected to pay. “They probably want to paint a picture of business as usual,” he said.

“If they do not pay, 38 (percent of face value) is going to be the sort of price level, if they do pay then it will be 44. The bid-offer spread is massive, that reflects the fact that no one wants to buy it,” he added.

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