The use of Bulgarian Foreign Debt Bonds in Privatization, by Daniela Bobeva, Sophia Kassidova, Ilia Avramov
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The so-called "swap operations" provide opportunities for
discount acquisition of debt instruments on the international
financial markets and their exchange for investments at a value
equal to the debt obligation.
Such operations became largely popular in Argentina, Brazil,
Chile, Equator, Mexico, The Philippines, Nigeria, Venezuela.
Bulgaria is the only country in Central and Eastern Europe to
allow the use of foreign debt bonds in privatisation. It is
a challenge to introduce a debt-for-equity swap mechanism in a
country which is in transition from a centrally planned to a market
economy, because of the unique nature of this transition. Of
course, it is being carried out based on the considerable
experience and analyses of the effect of the debt-for-equity swaps
in some countries in Latin America and Africa. The Bulgarian
experience is quite modest, since the legal framework of such swaps
was enforced only in December 1994. Nevertheless, this short period
is sufficient to make an assessment of both the initial and
possible effects of the partial exchange of the foreign debt for
equity on privatisation. The swap operations are not only a debt
management instrument but also an acceleration mechanism for
denationalisation.
The current study analyses the positive effects and the problems
with the foreign debt exchange as well as their implications for
the parties involved in swap operations. Some recommendations based
on this study will be made to the policy makers.
CHAPTER I : BULGARIA FACES A SERIOUS DEBT
CRISIS
Bulgaria is not among the countries with the largest foreign
debt but the parameters of the obligation are quite unfavourable.
Unfortunately, the serious debt crisis has been underestimated and
this issue was not given priority in the programs of any government
so far. The understanding of the seriousness of the crisis
is an argument for the introduction of debt-for-equity swap schemes
as a possible approach to at least partial reduction of the foreign
debt burden.
A standard classification of the World Bank for the 1970-1993
period puts Bulgaria in the group of countries with the largest
debt per capita, together with Poland, Mexico, Brazil, etc. All
three basic coefficients (GDP per capita, foreign debt/GDP, foreign
debt/export) are above the critical level for these countries
during the 1991-1993 period. The debt coefficients for 1990-1994
are shown in Table 1, the calculations for 1994 and 1995
being made by the authors of this study.
Table 1
1990
|
1991
|
1992
|
1993
|
1994
|
Foreign Debt/GDP |
57.0%
|
124.3%,
|
118.3%
|
124.9%
|
112%
|
Foreign Debt/Export |
239.3%
|
330.7%
|
281.8%
|
235.6%
|
231%
|
Interest Payments/GNP |
2.7%
|
1.6%
|
2.4%
|
2.6%
|
3.95%
|
Interest Payments/Export |
11.2%
|
4.4%
|
5.8%
|
4.9%
|
8.2%
|
Source: World Debt Tables, Vol. 2, 1994-1995, The World
Bank.
Note: Because of lack of GNP data, 1994 coefficients and
1995 forecasts are based on GDP.
The amount of the foreign debt includes the restructured
obligations to the London Club, the obligations to Russian and
Polish banks not included in the agreement with the London Club,
the obligations to the Paris Club, the World Bank, the IMF, and the
EU.
The amount of the 1994 interest payments includes buy-back
(7.327 mln.), partial payment in the final period (.030 mln.)
and down payment (.704 mln.).
The dynamics of the relative foreign debt indicators in the
table is related to the deterioration of the economic environment
in the country rather than to a considerable increase of the
foreign debt. One exception is 1994, when the rescheduling
and reduction of the debt on the one hand and the better economic
results on the other lead to slightly lower foreign debt/GDP and
foreign debt/export ratios.
An analysis of the economic and foreign debt indicators shows
that Bulgaria has smaller potential to service its debt in
comparison to Poland and Hungary.
Table 2
Economic Indicators, average for 1992-1995. (in US$ billion)
Macroeconomic indicators |
Poland
|
Hungary
|
Bulgaria
|
Russia
|
Real GDP |
4.3%
|
-0.8%
|
-2.1%
|
-13.4%
|
GDP |
|
|
|
6
|
- per capita |
2,420
|
3,740
|
1,1130
|
1,390
|
Inflation (Yr.-Yr.) |
34.4%
|
22%
|
87.6%
|
881.3%
|
Credit coefficients |
|
|
|
|
Current account (% of GDP) |
-1.5%
|
0.2%
|
-2.1%
|
1.6%
|
Budget deficit (% of GDP) |
-3.3%
|
-5.7%
|
-5.8%
|
-7.4%
|
Debt/GDP |
47
|
65
|
127
|
54
|
Debt/Export |
282
|
202
|
307
|
195
|
Debt service coefficient |
17
|
41
|
21
|
17
|
Source: Salomon Brothers, Emerging Markets Research,
Biweekly, April 5, 1995
The abilities of Bulgaria to service its foreign debt are
limited, so are the prospects of doing this. In this respect, the
inevitable exchange is one of the important mechanisms for
relieving the debt burden. In other words, from a fiscal point of
view it is justified to have a balanced program for partial
exchange of the foreign debt for equity.
The suspicion and the political arguments connected with the
swap operations are based on the assumption that the Brady bonds
users buy Bulgarian property cheaper and this indirectly lowers the
degree of public support for privatisation. This media insinuations
do not take account of the direct effect of the exchange on the
budget and its indirect influence on the general recovery of the
economy. The "lower" price which Brady bonds users pay is offset by
the reduction and rescheduling of the debt, i.e. while an
individual buyer may profit, the state does not lose. On the other
hand, since the swap operations are available to foreign and
domestic persons, both of them may profit.
The third fact which is being underestimated by the critics of
the debt-for-equity swap in Bulgaria is that it is a part of the
debt agreement and in this sense it was a part of the prerequisites
for signing of the latter. This means that the scope of the
debt-for-equity swap cannot be infinitely limited because this will
put under question the conditions of the agreement with all the
dangers involved.
Finally, the Bulgarian bonds are not particularly attractive and
they have to be made such, which depends to a large extent on the
swapping possibilities. As the analysis in Chapter II shows,
the prices of the Bulgarian foreign debt are quite unstable and
their level suggests that they are not very attractive.
CHAPTER II: FLUCTUATION OF BULGARIAN DEBT
PRICES AND FACTORS INFLUENCING THEM
The current Chapter is devoted to the relation between
the foreign debt price and the exchange rate as macroeconomic
variables indicating the situation and the rates of development of
the national economy and comparing them with those of the world
economy. If the hypothetical relation between debt price and
exchange rate be proven, this will confirm the assumption that in
Bulgaria the fluctuation of this macroeconomic factor determines
the decisions of the participants on the debt market. On the other
hand, the lack of such a relation will lead to the conclusion that
the fluctuation of the exchange rate does not influence the price
of debt bonds and another variable has to be found to account for
the tendency in their change. The validity of the hypothesis will
be proven by a descriptive analysis of the dynamics of the exchange
rate and foreign debt price.
The analysis begins with an overview of the dynamics of the
exchange rate by years. When comparing the fluctuations of debt
prices and the USD/BGL rate, the analysed period is further divided
into two subperiods, where the natural division line is drawn by
the moment of signing of the Brady agreement with the
creditor banks, which changes the structure and the levels of the
debt price. The exchange rate curves and the levels of the
Bulgarian foreign debt for the two subperiods are shown in Chart
1 and Chart 2, while the actual levels are evident from
Table 3 and Table 4.
Table 3
BULGARIAN FOREIGN DEBT PRICE 1992 -1994
(in US cents)
Date
|
Price
|
Exchange Rate (lv/USD)
|
92q1
|
18
|
23.281
|
92q2
|
17
|
23.021
|
92q3
|
16
|
22.636
|
92q4
|
13
|
24.492
|
93q1
|
14
|
26.522
|
93q2
|
21
|
26.681
|
93q3
|
26
|
28.026
|
93q4
|
41
|
32.711
|
94q1
|
35
|
64.942
|
94q2
|
48
|
53.650
|
94q3
|
45
|
61.201
|
Chart 1
BULGARIAN FOREIGN DEBT PRICE AND EXCHANGE
RATE
JANUARY 1992 - SEPTEMBER 1994
Source: BNB, "Informational bulletin"
Table 4
BULGARIAнS BRADY BONDS FOREIGN DEBT PRICE 1994-95
(in US cents)
DATE
|
Dbs (asked)
|
Dbs (bid)
|
FLIRBs (asked)
|
FLIRBs (bid)
|
Exchange rate (lv/USD)
|
PDI
|
July 01
|
43
|
42.5
|
19.75
|
19
|
53.691
|
34
|
July 04
|
48.
|
46.5
|
25.75
|
23.5
|
53.8
|
40
|
July 07
|
48.5
|
45
|
24
|
23.5
|
53.845
|
39
|
July 10
|
47
|
48
|
24
|
23.38
|
53.901
|
39
|
July 19
|
47.75
|
47.38
|
24.13
|
23.5
|
53.644
|
38
|
July 21
|
47.5
|
46
|
23.75
|
22
|
53.628
|
38
|
July 26
|
45.5
|
42.25
|
22
|
19.5
|
53.47
|
35.25
|
July 27
|
45.5
|
42
|
22
|
19
|
53.472
|
35.25
|
Aug 05
|
43
|
41.75
|
19
|
17.25
|
53.363
|
33.25
|
Aug 08
|
43
|
41.75
|
19
|
17.75
|
53.518
|
33.88
|
Aug 16
|
46.26
|
45.75
|
21
|
20.25
|
54.686
|
37.25
|
Aug 18
|
50
|
49.13
|
23.5
|
23
|
56.037
|
43
|
Aug 23
|
47.88
|
47
|
22.5
|
21
|
56.128
|
41.75
|
Aug 25
|
48.13
|
47.5
|
22.38
|
21.63
|
56.363
|
42.5
|
Aug 30
|
48.38
|
47.63
|
22.25
|
21.25
|
57.403
|
43
|
Sept 01
|
47.88
|
47.5
|
22.25
|
21.75
|
57.243
|
43
|
Sept 02
|
48.63
|
47.88
|
22.75
|
22.25
|
57.588
|
43.25
|
Sept 07
|
48.25
|
47.8
|
22.25
|
21.69
|
60.786
|
43.38
|
Sept 08
|
48.25
|
47.63
|
22
|
21.38
|
61.135
|
42.25
|
Sept 09
|
49.13
|
48.75
|
22.5
|
21.75
|
62.023
|
44.25
|
Sept 13
|
48.63
|
48.13
|
22.38
|
21.88
|
63.847
|
43.25
|
Sept 14
|
48.25
|
47.75
|
21.75
|
21.25
|
63.881
|
43
|
Sept 16
|
48.5
|
47.75
|
22
|
21.25
|
63.504
|
43.25
|
Sept 20
|
48.25
|
47.75
|
22
|
21.5
|
61.478
|
43.25
|
Sept 21
|
48.0
|
47.5
|
22
|
21.5
|
61.394
|
43
|
Sept 22
|
47.75
|
47
|
21.75
|
21
|
61.38
|
42.75
|
Sept 26
|
47.63
|
47
|
22
|
21
|
60.955
|
42.25
|
Sept 27
|
48.75
|
48.25
|
22
|
21.63
|
61.001
|
42.88
|
Sept 28
|
49
|
48.5
|
22
|
21.25
|
61.082
|
43
|
Sept 30
|
50.75
|
50.25
|
23
|
22.63
|
61.131
|
44.75
|
Oct 05
|
50
|
50
|
23.75
|
23
|
62.038
|
46
|
Oct 10
|
49.13
|
48.88
|
22.88
|
22.25
|
63.44
|
44.5
|
Oct 17
|
50.25
|
49
|
23.5
|
22.25
|
64.392
|
44.88
|
Oct 20
|
50.13
|
49.5
|
23.5
|
22.75
|
64.798
|
45.13
|
Oct 24
|
50.5
|
50
|
23.38
|
23
|
65.315
|
45.5
|
Oct 25
|
51
|
50.5
|
23.5
|
23.25
|
65.527
|
46
|
Oct 26
|
50.5
|
50
|
23.5
|
22.5
|
65.398
|
45.5
|
Oct 31
|
50.5
|
49.75
|
23.38
|
22.75
|
64.922
|
45
|
Nov 09
|
46.75
|
46.25
|
20.5
|
20.5
|
64.877
|
41.25
|
Nov 18
|
47.88
|
47.25
|
21.5
|
21.5
|
65.242
|
42
|
Nov 21
|
47.5
|
46.88
|
21
|
21
|
65.331
|
41.75
|
Nov 25
|
46.5
|
46
|
20.75
|
20.75
|
65.259
|
41.13
|
Dec 02
|
49.13
|
48.5
|
22.88
|
22.88
|
64.705
|
43.5
|
Dec 07
|
49
|
48.38
|
22.28
|
21.75
|
65.126
|
44.23
|
Dec 08
|
48.78
|
48.25
|
21.88
|
21.38
|
65.199
|
44.38
|
Dec 13
|
49.5
|
49.13
|
23
|
22.13
|
65.267
|
44.5
|
Dec 19
|
46.98
|
46.38
|
22.75
|
22.38
|
65.441
|
44.5
|
Dec 22
|
49
|
48.25
|
22.75
|
22
|
66.269
|
44.63
|
Jan 04
|
46.38
|
45.88
|
22
|
21.63
|
66.663
|
43.63
|
Jan 05
|
46
|
45.38
|
22
|
21
|
66.709
|
42.38
|
Jan 07
|
45.75
|
45
|
21.5
|
20.5
|
66.916
|
41
|
Jan 09
|
45.25
|
44.5
|
20.5
|
20
|
66.916
|
40
|
Jan 10
|
41.25
|
39.5
|
19
|
17.5
|
66.992
|
36.88
|
Jan 11
|
40.38
|
38.25
|
19
|
17
|
66.997
|
34.63
|
Jan 13
|
44.63
|
43.38
|
20.75
|
19.5
|
67.095
|
|
Jan 16
|
45.5
|
44.13
|
21.37
|
19.75
|
67.193
|
|
Jan 18
|
45.63
|
44.25
|
20.5
|
19.5
|
67.164
|
|
Jan 19
|
44.88
|
43.63
|
20
|
19.25
|
67.009
|
|
Jan 20
|
44.38
|
43.38
|
20
|
19.5
|
67.04
|
|
Source: PARI Newspaper and reports of ING
Bank .
Behaviour of the Bulgarian Debt Price and the
Exchange Rate before Signing of the Deal with the London Club
Creditor Banks (January 1992 - June 1994)
The exchange rate in 1992
At the beginning of the period the exchange rate was 23.281
BGL/1 US$. For most of 1992 the lev was showing a slight increase.
Its devaluation towards the end of the year was insignificant,
which is normal for the winter period. In that year the foreign
exchange reserves of the Bulgarian National Bank (BNB) increased
4.5 times to reach US$ 1 442.8 mln. at the end of October. The
external financing from the IMF accounted for 57% of this increase.
BNB had the opportunity to intervene on the domestic market more
often, thus supporting the lev high levels. Its policy was
facilitated by the lack of sharp increases of forex demand and when
such increases were projected (i. e. towards the end of the year),
there were sufficient foreign exchange resources for stable market
interventions.
The exchange rate in 1993
The BNB policy of flattening out the fluctuations of the
exchange rate and gradually devaluating the national currency
achieved its goals in 1993. The lev slowly devaluated by 7.13 lv.
or 27.9%. In the first half of the year the exchange rate showed
almost constant levels. However, for the same period consumer
prices jumped by 34.6%, salaries - by 34.8% and the monetary base -
by 18.6%. The annual figures for these three indicators are 53.9%,
58.9% and 53.1% respectively. The substantially larger increase of
these macroeconomic determinants compared to the exchange
rate suggests an active and all-year-round support of the lev by
BNB.
The exchange rate in 1994
It is only the forex speculations against the lev, made by
market makers on the exchange market, which could account for the
sharp fluctuations of the exchange rate that occurred at the end of
March and the end of August 1994. Only by April the lev lost 98.3%
of its value without any evident macroeconomic reason. Consumer
prices rose by just 16.6% and the monetary supply - by 30.7%. So
the highly increased demand for foreign exchange was short-term and
had a speculative nature. The late intervention of BNB was another
reason for the great fluctuations of the exchange rate in 1994.
The foreign debt price levels fluctuated around 16 cents per US$
1 par value in 1992. They marked a stable downward trend with no
sudden falls. Nevertheless, the foreign debt price reached its
bottom for the studied period - 13 cents per US$ 1 par. On the
other hand, the exchange rate was increasing for the better part of
the year, except for the last quarter when the dollar is typically
strong. In 1993, the foreign debt price switched from downward to
upward trend, with the biggest jump at the end of the year - 57.7%.
At the same time the lev suffered from its traditionally big winter
devaluation - 16.7%. Only in the first quarter of 1994, the soaring
dollar was followed by a reduction of the price of Bulgarian
foreign debt. The devaluation of the lev by 98.5%, however, exceeds
considerably the 14.6% drop of the foreign debt price. The latest
increase of 37.1% came along with much weaker stabilization of the
lev in the second quarter. A more likely reason for the debt price
jump was the refilling of the foreign exchange reserve by the two
IMF loans for total value of $ 185.96 mln.
The hypothesis for a relation between the fluctuations of the
foreign debt price and the exchange rate is not supported by the
facts for the surveyed subperiod. Furthermore, the trends of these
two macroeconomic variables prove to be opposite.
At the end of June, 1994 Bulgaria signed an agreement with the
London Club creditor banks for rescheduling and reduction of its
foreign debt. Three types of bonds were issued as a result of the
deal:
- Discount Bonds (DBs)
- Front Loaded Interest Reduction Bonds (FLIRBs)
- Interest Arrears Bonds (IABs)
This changed the Bulgarian foreign debt position on the
international financial markets. It was replaced by three different
prices for the three types of debt securities. The movement
of the new positions is shown in the next section.
Behaviour of the Bulgarian Debt Price and
the Exchange Rate after Signing of the Brady Deal (June 1994 -
January 1995)
The three new prices show almost identical dynamics: they
fluctuate respectively. Chart 2 shows two of the price levels - the
bid price of DBs and FLIRBs.
Chart 2.
BULGARIAN FOREIGN DEBT PRICE AND EXCHANGE
RATE
JULY 1994 - JANUARY 1995
The difference between them is almost constant. Therefore, one
could talk about a uniform dynamics of the debt price, irrespective
of the number of positions. October is a record month for the
Bulgarian foreign debt prices. At the beginning of the month they
reached their highest: 50.75 cents per US$ 1 par for DBs, 23 cents
per US$ 1 par for FLIRBs and 46 cents per US$ 1 par for IABs.
At the same time the lev continued to drop slowly. Its
devaluation for the month was 5.6%. From the beginning of that
subperiod until the end of October, the devaluation of the national
currency compared to the US$ was by 20.9%. For the period November
1994 - January 1995 the debt securities' price continued to decline
and reached its bottom on January 11, when the exchange rate was
stable, around 66 leva per US$ 1. By the end of the period
the rate reached slowly 67.04 leva per US$ 1. The devaluation of
the lev for the whole subperiod was by 24.9%, while debt securities
lost only 4% of their value. Although gradual, such devaluation
shows in a long-term perspective the aggravating situation with the
Bulgarian economy and the fact that GDP growth lags behind the
increase of the monetary base. In a short-term perspective it is an
indicator of a stable, although not drastic overdemand for foreign
exchange. The lack of any connection between the exchange rate
levels and the foreign debt price confirms the supposition that the
isolation of the domestic foreign exchange market from the
international ones hinders the way of the signals incorporated in
the exchange rate to the international debt market agents.
The problem of having sufficient information and of the interest
of the market agent in such information is of crucial importance
when analysing the relation between the price levels on a
given foreign market and variables connected to the national
economy of a country like Bulgaria. The tables and charts deny any
connection between the foreign debt price and the exchange rate
level and prove that this macroeconomic variable is not taken into
account by the debt market agents.
Another indicator, which is not so closely connected with the
condition of the Bulgarian economy but because of its nature is
well known to the international agents is the amount of the
external financing of Bulgaria. Chart 3 shows the relation
between external financing and the foreign debt price.
Chart 3
BULGARIA'S EXTERNAL FINANCING AND FOREIGN DEBT
PRICE
1993 - 1994
* The debt price after July 1994 is the bid price of Bulgarian
DBs.
The pick levels of the debt price are solidly backed-up by the
largest amounts of external financing, above all on the part of
IMF. The October jump indicates this most clearly. The amount of
the foreign support for September and October reached US$ 312 mln.
Thus, the improved solvency of Bulgaria is a possible reason for
the high levels of the foreign debt price in that period. This is
proven by the fact that the actions of the institutions which
extend these credits are closely observed by the participants on
the debt market.
The empirical data confirms the existence of a cause-and-effect
link between external and internal factors and the prices of the
Bulgarian foreign debt instruments. The steady increase of the debt
price after the principle agreement with the creditor banks is
continuing also after the technical conclusion of the deal in July
1994.
The existence of a cause-and-effect link between the debt price
on the secondary markets and the governmental changes in the debtor
country was proven by the development of the governmental crisis in
the country in the middle of November 1995. The drop in the prices
of Bulgarian bonds in that period came as a result of the
announcement of the premature parliamentary elections. The economic
uncertainty before and after the elections made the investment in
Bulgarian securities quite risky. Awaiting a new government which
would commit to long-term economic goals, the IMF and the World
Bank postponed their agreements with Bulgaria. At the end of the
year the downward trend continued to be influenced by a number of
external factors, e. g. the decreasing incomes of the investors on
the American markets.
The record drop of more than 3 cents per US$ 1 in the prices of
Bulgarian securities, which occurred around March 9, 1995, was due
to investors' retreat from the debt market because of the collapse
of the forex market and the record fall of the US$. The shaken
confidence in the Mexican currency caused mass sales of Mexican
Brady bonds at lower prices. According to analysts, the debt
instruments market is "thin", which makes it particularly sensitive
to the uncertainty of the investors and their assessment of the
stabilization policy which is under way in Latin America.
In this respect, the lower prices of Bulgarian securities in
mid-January 1995 resulted from the bad situation in Latin America
rather from any expectations about the economic and
political situations in Bulgaria after the formation of the
new Cabinet. Domestically, the confidence of the international
financial world in the new government determines the attitude to
Bulgarian Brady bonds. According to Jaques Camp, member of the
executive board of ING Bank "... the progress of the privatisation
process and especially the conversion of the national debt into
equity would have a positive effect on the price and sales of
Bulgarian Brady bonds".
Given those events on the international debt markets and the
factors which influenced the prices of Bulgarian securities, it
could be said that the downward trend of Bulgarian debt prices is
not indicative of shaken confidence of the investors and
aggravation of the general economic environment in the country but
is rather a reaction to the bad economic situation on the
international exchange market.
CHAPTER III: NATURE AND SCOPE OF
DEBT-FOR-EQUITY SWAPS IN BULGARIA
The scheme for rescheduling of the Bulgarian debt is based on
the principles and mechanisms of the "Brady plan", initiated by
Nicholas Brady in 1989. According to the conditions of the plan the
creditors exchange their takings for new Brady instruments.
The purchase of 30-year American bonds to guarantee the
state-issued Brady bonds and of short-term American bonds for US$
169 mln. to guarantee interest payments in 1995, in a way was a
pledge to meet the requirements of the foreign debt deal.
The agreement partly envisages the exchange of equity in the
country for two of the instruments of the Brady menu. The
opportunity for exchanging debt for equity is a unique chance to
speed up privatisation alongside with decreasing the foreign debt.
The debt-for-equity swap improves the structure and quality of the
debt. After the transaction has been made, the holder of the bonds
becomes owner of the acquired assets, in this way exchanging the
default risk for investment risk.
An important element for the successful implementation of the
swap operations will be the political will of the government to
service the deal.
The deal for rescheduling of Bulgarian foreign debt and its
service through the years are agreed upon on the basis of efficient
external financing, which will continue to depend on the
availability of a current program with the IMF and the
implementation of its economic parameters. Given these conditions,
it is of paramount importance to develop a synchronised strategy
for speeding-up the reforms and managing the country's foreign and
internal debt. After the adoption of the Law on Ratifying the
Agreements for Exchange of the Debt of Bulgarian Foreign Trade
Bank, Inc. to Foreign Commercial Creditor-Banks for Issuance of
State Securities and Buy-back (published in State Gazette #61 of
1994) $ 5.137 billion worth of Bulgarian Brady bonds were issued,
of which:
1. Discount Bonds (DBs) for US$ 1.8 billion, payable on
maturity;
2. Front Loaded Interest Reduction bonds (FLIRBs) for US$ 1.6
billion, with 18 years of maturity and a 8-year grace period;
3. Interest Arrears Bonds (IABs) for US$ 1.6 billion, with 17 years
of maturity and a 7-year grace period.
Given the fact that only DBs and FLIRBs could be used in
privatisation, the conversion ceiling adds up to US$ 3.4 billion.
This total amount of the debt instruments which can be used in
privatisation represents approximately one-third of the country's
total foreign debt. In principle, countries swap a small portion of
their foreign debts and most of them (except for Mexico and
Nigeria) set conversion ceilings.
Table 5
SCOPE OF DEBT-FOR-EQUITY CONVERSION
(in US$)
Country |
Total debt amount
|
Conversion ceiling
|
Annual conversion amount
|
Argentina |
50 bln.
|
4 bln.
|
400 mln.
|
Chile |
19.3 bln.
|
4.8 - 7.2 bln.
|
480-720 mln.
|
Philippines |
100 bln.
|
3 bln.
|
1.3-1.2 bln.
|
Source: Economist intelligence unit, Special Report 1104,
Sept 1989, p.100-101.
One could hardly expect that Bulgaria will swap a substantial
part of its debt, having in mind the fact that the country's
economy is not very attractive to the large foreign investors
because of the limited market (only 8 million consumers) and the
lack of substantial natural resources, which generally attract the
large foreign investors.
The amount and the scope of the debt-for-equity swaps depend on
the availability of assets to swap on the one hand and the amount
of the offered instruments on the other. The nominal value of DBs
and FLIRBs is $ 3.4 billion. The maximum amount of the assets which
could be obtained by using this instrument of payment is 170
billion leva (based on the average US$/BGL exchange rate according
to the BNB fixing for the recent six months), which is a small
portion of the assets offered.
The scope of the swap operations has been restricted only to
privatisation of state enterprises, as provided by the Law on
Privatisation, i. e. Brady bonds are not used in privatisation of
municipal companies and banks, establishment of joint-ventures and
the social services. In comparison to other countries doing
debt-for-equity swaps, the scope of this instrument is quite
limited and sooner or later the problem with its wider application
will have to be solved. It is advisable to use this instrument also
in selling bankrupt enterprises.
A strong argument for the use of debt-for-equity swaps is the
capital/interest ratio, i. e. the proportion between the debt
amount and its service.
Analyses show that if the current market LIBOR of 6.5625%
remains the same and there is no conversion or buy-back, the amount
of the interests will be US$ 5.24 billion. In the event of at least
partial conversion of the debt into equity, a substantially higher
total amount of the debt will have to be paid. The situation will
become more complex if the current LIBOR rises to 9.000%. The total
amount of the debt then will increase by US$ 2.246 billion. As a
whole the interests/principal ratio is too high for both
instruments (158.29%). Thus the debt-for-equity swaps, especially
in the first year, are an important mechanism for changing this
ratio and paying less on interests.
Table 6
BULGARIA'S FOREIGN DEBT PAYMENTS*
(in US$ million.)
Year
|
DBs
|
FLIRBs
|
Year
|
DBs
|
FLIRBs
|
1994
|
0.00
|
0.00
|
2010
|
139.09
|
229.61
|
1995
|
139.09
|
33.8
|
2011
|
139.09
|
229.61
|
1996
|
139.85
|
33.99
|
2012
|
140.23
|
229.61
|
1997
|
138.71
|
37.93
|
2013
|
138.71
|
0.00
|
1998
|
139.09
|
38.03
|
2014
|
138.71
|
0.00
|
1999
|
130.09
|
42.26
|
2015
|
139.09
|
0.00
|
2000
|
139.47
|
46.61
|
2016
|
139.47
|
0.00
|
2001
|
139.85
|
50.98
|
2017
|
139.09
|
0.00
|
2002
|
138.71
|
176.96
|
2018
|
139.85
|
0.00
|
2003
|
138.71
|
229.61
|
2019
|
138.71
|
0.00
|
2004
|
139.47
|
229.61
|
2020
|
139.09
|
0.00
|
2005
|
139.09
|
229.61
|
2021
|
|
|
CSD.bg |
|