If Greece can, why can’t I?

July 3, 2012

We all know that Greece finally persuaded bondholders to swap their debt for new bonds this year, averting a messy default.

But Greece is not the only country to keep investors biting their nails in 2012 over the value of their holdings – frontier market sovereign borrowers have also been tinkering with their debt payments.

St Kitt’s, also a member of a monetary union in the Eastern Caribbean, like Greece completed a debt exchange offer in March.

Meanwhile, creditors holding over $200 million worth of Belize’s sovereign debt last month formed a committee because of their concerns about the country’s willingness to honour payments on a $550 million bond.

Gabon kept nerves frayed two weeks ago, when it delayed a coupon payment on its Eurobond, straying narrowly close to default.

However, it settled a dispute with a South African company that had frozen bond payment funds via a court order, and paid the coupon just inside the 10-day grace period.

Still, this kind of risk is the sort of thing frontier market investors thrive on, explaining their interest these days in Greek debt, and the rewards can be high.

That’s been the case for those who held their nerve over West African cocoa producer Ivory Coast, which stopped paying out on its debt in Dec 2010 during a four-month civil war.

Ivory Coast’s $2.3 ¬†billion 2032 bond has enjoyed stonking 55 percent returns this year after Ivorian officials promised to start paying coupons again, and today the government duly paid the coupon as expected.

The bond, which starts paying principal ahead of maturity, is trading around record highs of 77 cents on the dollar, and  if the government promises to pay its three missed coupons, it can yet go further.

According to Kevin Daly, emerging debt fund manager at Aberdeen Asset Management:

The government is yet to come out with a plan to discuss the repayment of the missed coupon payments…and certainly that is worth another 3-plus points which the market is not pricing in. So if they come out with a plan which will pay us back sooner rather than later…this will give the bonds another bit of an upside potential.

(Additional reporting by Adnan Bashir)

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