Ivory Coast’s Finance and Economy Ministry is “taking all necessary measures” to avoid defaulting on its $2.3 billion of bonds, according to a statement sent to bondholders. Prices for the debt jumped the most on record.
“The republic is in the process of taking all necessary measures so that the interest payment will be made before the expiration of the 30-day grace period,” according to the statement carrying Finance and Economy Minister Desire Dallo’s signature and dated yesterday. The letter is genuine, a Finance Ministry official said in an interview, declining to be identified because of ministry policy.
President Laurent Gbagbo’s administration will today discuss the payment of the coupon, Ahoua Don Mello, an adviser to Gbagbo, said in an interview from Abidjan, the commercial capital.
A political standoff over the disputed results of the Nov. 28 election between Gbagbo and his rival, Alassane Ouattara, sent yields on the West African country’s 2032 bonds to a record high of 17 percent earlier today.
The bonds jumped the most since being issued in April, gaining as much as 11 percent and trading 7.6 percent higher at 40.750 cents on the dollar as of 1:47 p.m. in Abidjan, according to generic prices on Bloomberg. The yield on the 2.5 percent bonds due December 2032 fell 142 basis points to 15.33 percent.
Caution
“Whilst no doubt it is a positive signal, we can only guess if they will be sincere in their efforts to rectify the situation,” said Phillip Blackwood, head of emerging markets at Sydbank A/S, Denmark’s fourth-largest bank, which received the statement at 7.30 a.m. London time. “If people were that confident they would pay on time then we would be trading with a 50 handle not a 40 handle.”
The world’s biggest cocoa-producing nation was due to pay $29 million in interest on Dec. 31 and has a 30-day grace period from that date. “In the light of the difficulties experienced by the country, the Republic of Cote d’Ivoire has not yet been able to make payment of the coupon,” according to the statement sent to bondholders.
“It’s a good sign, but we have to be a little bit cautious because in principle they are cut off from the Ivorian accounts with the central bank, so it’s hard to see how they will make the payments in practical terms,” Samir Gadio, a London-based emerging-market strategist at Standard Bank Plc, said in a telephone interview today.
Access to Funds
The Central Bank of West African States recognized Ouattara as Ivory Coast’s president last month, giving him control over state reserves previously governed by Gbagbo. Ouattara, 69, recognized by the United Nations, the U.S. and African leaders as victor of the election, is a former deputy managing director at the International Monetary Fund.
“So far, Desire Dallo, as the minister of finance, does not have any other option other than taking into consideration the commitments taken in the past,” Gbagbo adviser Don Mello said. “These commitments can’t be modified as long as a new budget has not been voted on.”
The Ivory Coast defaulted on its Brady bonds in 2000 after it failed to meet a $10 million principal payment deadline. The nation issued new Eurobonds at a yield of 10.181 percent in April last year to replace the earlier debt.
Political Will
“With Ivory Coast the issue was never solvency, or perhaps even liquidity, but political willingness to pay by the incumbent Gbagbo regime,” Timothy Ash, head of emerging-market strategy at Royal Bank of Scotland Group Plc, said in an e-mail today. “The delay had more to do with the incumbent president trying to heap more pressure on the international community to reach a deal in the standoff with the opposition.”
The United Nations estimates as many as 210 people have been killed in violence since the election. In the past three weeks, about 16,000 people have fled villages in the west of the country, where the political crisis has exacerbated ethnic tensions, according to the Humanitarian Country Team, a group of non-governmental and UN organizations.
Ouattara said he would consider a “wide composite cabinet” including members of Gbagbo’s party, Youssoufou Bamba, the country’s envoy to the UN, said yesterday in an interview with the British Broadcasting Corp.’s Hardtalk program. The army, which supports Gbagbo, has blockaded streets around the Golf Hotel in Abidjan, where Ouattara has established his administration.
Military Option
Kenyan Prime Minister Raila Odinga, the African Union’s envoy, will return to Ivory Coast this week in a second effort to find a resolution to the conflict, according to an e-mail from his Nairobi-based office yesterday. Nigerian President Olusegun Obasanjo made an unannounced visit to the country on Jan. 8 to mediate.
Ouattara refused to enter talks with Gbagbo last week, telling the BBC that a military intervention led by the Economic Community of West African States would come “sooner than you think.” Ghana said Jan. 7 it wouldn’t contribute troops to a mission in the country.
“I do not think this military option is going to bring peace in Cote d’Ivoire,” Ghanaian President John Atta Mills told reporters in the capital, Accra. “I don’t want to be saddled with problems we cannot solve. We have our own internal problems.”
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