New year, new debt default?

January 4, 2012

This time last year it was Ivory Coast, and today it was Kazakh sovereign wealth fund-controlled BTA bank which failed to pay $160 million in coupons on its debt.

In late 2009, Ukrainian state energy firm Naftogaz restructured its debt, the same year government-owned Dubai World declared a standstill on coupon payments.

While we’ve all been looking at possible sovereign default in the euro zone, it’s easy to forget that other governments or state-linked entities may also be facing difficulties. In many cases, apparent state backing may not mean much if governments do not rush to the aid of cash-strapped firms.

Only today, Spain denied reports it was guaranteeing the debt of regional authority Valencia.

For BTA, which has said it wants to restructure its debt, this isn’t the first time

The bank restructured its debt once already in 2010 after defaulting in 2009, installing wealth fund Samruk-Kazyna as its 81.5 percent shareholder. It has since struggled with persistent bad loans, slow economic growth putside the commodity sector and the cost of servicing its government funding package.

The bank still has 10 working days’ grace period before officially defaulting on the payments. It is meeting shareholders to discuss the restructuring on Jan 26.

According to Mariya Gancheva of Mitsubishi UFJ:

Support from the GDR (global depository receipt) holders will be crucial for the restructuring of the bank to take place.

Gancheva added, however,  that

there is no visibility whether the bank will pay the coupon or not

Corporate default rates in emerging markets are likely to rise this year, with ING seeing the high-yield corporate default rate at 1.7 percent, three times 2011 levels. Deleveraging by western banks is hitting lending to the riskier end of the credit spectrum.

And meanwhile, what became of Ivory Coast, which missed a coupon payment on restructured dollar debt at the end of 2010 and failed to pay even after a month’s grace period? Despite a change of president, the country still has not paid up and has since missed more payment dates — next estimated coupon arrival time, ┬áJune 2012.



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