Congo head­ing for bond de­fault

The Star Early Edition - - BUSINESS REPORT / INTERNATIONAL - Joe Bavier and Karin Stro­hecker

THE REPUB­LIC of Congo ap­peared headed for a sov­er­eign debt de­fault to­day af­ter the lat­est coupon pay­ment on its $363 mil­lion (R4.71 bil­lion) eu­robond was frozen amid a decades-old le­gal dis­pute over a $1bn debt to a lo­cal con­struc­tion com­pany.

The 30-day grace pe­riod for the $21m pay­ment on the bond ma­tur­ing in 2029 ex­pired yes­ter­day. While in­vestors will likely await the out­come of a pend­ing court case be­fore tak­ing ac­tion, the cen­tral African oil pro­ducer risks se­ri­ous con­se­quences on its fu­ture abil­ity to bor­row.

The dis­pute cen­tres around Congo-based con­struc­tion com­pany Com­mis­sions Im­port Ex­port (Com­misim­pex), which has pur­sued the Congo in the courts for nearly two decades to seek pay­ment for work it did for the gov­ern­ment go­ing back to at least 1992.

Freez­ing

Com­misim­pex sent two re­strain­ing no­tices to Delaware Trust Com­pany – the trustee of the eu­robond – in late June, freez­ing the pay­ment to in­vestors of the funds which had been trans­ferred by Con­golese au­thor­i­ties a day ear­lier.

“If they re­ally man­age to im­pose this and then (Congo) owes one bil­lion, then it’s re­ally hard for them to raise funds,” said Je­lena Spa­so­je­vic, di­rec­tor of emerg­ing mar­kets credit trad­ing at Re­nais­sance Cap­i­tal.

“(Congo) can­not re­ally af­ford to pay this. It would have a cat­a­strophic ef­fect… That’s pretty much all their forex re­serves,” she added.

Congo, which has been ham­mered by fall­ing oil prices, has re­fused to pay Com­misim­pex and stated in Novem­ber the com­pany’s chief, Mohsen Ho­jeij, owed €1.3bn (R19.8bn) in un­paid taxes.

Delaware Trust is seek­ing to an­nul the re­strain­ing no­tices, ar­gu­ing the coupon funds had been trans­ferred for pay­ment to bond hold­ers and no longer be­long to Congo.

At­tor­neys for both sides in the case did not re­spond to re­quests for com­ment.

The New York court han­dling the case said it had no in­for­ma­tion on when a judg­ment was ex­pected.

Congo has had is­sues with three of its last four coupon pay­ments on the bond.

But Samir Ga­dio, Head of Africa Strat­egy at Stan­dard Char­tered Bank, said the sit­u­a­tion was more nu­anced this time.

The Repub­lic of Congo can­not re­ally af­ford to pay this. It would have a cat­a­strophic ef­fect…

“There was a will­ing­ness from the gov­ern­ment side to ser­vice the eu­robonds on time,” he said. “I would ex­pect some de­gree of le­niency with in­vestors.”

In­vestors could also be en­cour­aged by Congo’s re­cent talks with the In­ter­na­tional Mon­e­tary Fund, which re­cently agreed pro­grammes with Cemac-zone neigh­bours Gabon and Cameroon.

Congo’s Eu­robonds are trad­ing at just un­der 70 cents in the dol­lar, ac­cord­ing to Tradeweb data, af­ter hav­ing lost more than 10c since the start of July.

Ear­lier in the month, they hit a record low of around 61c in the dol­lar.

An­a­lysts said bond prices were sup­ported by the is­sue be­ing illiq­uid. How­ever, the is­sue trades around 10c be­low the eu­robonds of fel­low sub-Sa­ha­ran na­tion Mozam­bique which is al­ready in de­fault.

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