Банкеръ Weekly



The deal for swapping some of the Brady bonds for new long-term government securities may become the biggest international financial scandal after a moratorium on Bulgaria's foreign debt was imposed in March 1990. While the Minister of Finance Milen Velchev was officially presenting the new issue of Eurobonds in front of investment banks, insurance companies, pension and mutual funds in London, and the Deputy Finance Minister Krassimir Katev was trying to enthroll investors in New York, on March 20 the oppositional UDF-coalition got the signatures of 48 MPs under its appeal against the deal. The appeal will be moved to the Constitutional Court within three days after the ratification act for restructuring of Bulgaria's foreign debt is published in the Official Gazette. Within a month afterwards the Constitutional Court should extend its ruling on whether the Act is unconstitutional or not. It's hardly likely to imagine what would happen if the constitutional magistrates extend a ruling in favour of the appeal and pronounce the ratification act null and void. It will be disgrace for Bulgaria and the international financial markets will be suspicious towards us for a long time. In other words, Bulgaria will go back where it was in the first years after July 28, 1994 when the deal with the London Club was signed. As a result of that deal the country issued the Brady bonds, part of which the Government wants to swap now.If it wasn't for the opposition's intevention, the deal proposed by the Cabinet would become a fact by end-March. From March 18-21 the Finance Minister Milen Velchev presented it in Frankfurt and London, and his deputy Krassimir Katev - in Boston and New York. Before the two ministers began their road show to promote the new Eurobond issue, the managers of the deal - the investment banks JP Morgan and Salomon Smith Barney - announced they had already received subscription for EUR1BN, although the maximum value of Bradies to be swapped was fixed at EUR1.25BN. On March 19, a day after Mr. Velchev promoted the new issue in Frankfurt, Deutsche Bank (which holds a considerable amount of Bulgarian Brady bonds) accepted the invitation to co-manage the deal.On March 21 Mr. Velchev and Mr. Katev made their last presentation in London where together with JP Morgan and Salomon Smith Barney (within eight hours) all offers for exchange and repurchase of Bradies were gathered. They have been summerized and analyzed through a computer model, which gives the conclusive parameters of the deal. Until the Constitutional Court extends its ruling the deal will be a subject of endless calculations and comments as to wheather and how far it is advantageous to Bulgaria.On March 17 President Georgi Purvanov gathered 19 bankers and economists to hear their opinion on the deal. Generally, their stance is that it is difficult to assess the financial benefits from the deal. The State might not profit from it, but it won't be in the red either. Most of those who are well-acquainted with the subtleties of such schemes and attended the meeting with the President were not inclined to comment in public the Bradies swap deal. The Governor of the Bulgarian National Bank Svetoslav Gavrijsky and the Chairman of DSK Bank's Management Board Krassimir Angarsky reserved judgement. Ventsislav Antonov, who delivered quite a colourful one-hour lecture on the purport, advantages and disadvantages of such a deal during the meeting, also declined to express in front of the media his personal stance on the deal. However, the participants in the almost four-hour long discussion shared the opinion that advantages of that deal would be two - reschedulement of payment of Brady bonds' principal and Bulgaria's entering into the international financial markets by new long-term government securities.Brady bonds are bearing the heavy burden of financial instruments, issued after the moratorium on Bulgaria's foreign debt was imposed. In other words, the country first tells creditors it has no money to serve its liabilities, after that forces them to cancel half of the debt, and finally declares it would pay off the other half in 7 to 30 years. This is the essence of Brady bonds. Well, how could foreign investment banks be glad about a country, half of whose debt has been settled by such securities? Therefore, most countries that have issued Brady bonds are looking for an appropriate moment to swap them for a new kind of bonds in order to improve their image.In his statement to the press the President devoted quite little space for the motives, which made him sign the ratification act for the restructuring of Bulgaria's foreign debt. But the people learned that the Head of State expresses anxiety about the way in which the deal and the contracts going along with it were announced in Parliament.Para 13 of the 2002 Budget Act allows the Government to issue new debt instruments on condition the total amount of the State's liabilities in the year-end does not increase. According to some lawyers, Mr. Velchev and Mr. Katev could have made the swap deal without moving it to Parliament at all, although the stance of the UDF is just the opposite. After all, the Constitutional Court will have the final say.

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