Bankers Call Bolivia Debt Buyback Plan a Success

Nearly half of Bolivia’s foreign creditor banks have agreed to sell about $308 million of Bolivian loans back to that country at a great discount, U.S. bankers said on Thursday.

Bolivia received offers from 51 of its 110 commercial bank creditors, said officials at Merrill Lynch Capital Markets, the agent for transaction, which is designed to reduce the poor country’s foreign debt.

Bankers said these results showed the Bolivian buyback scheme was a great success in contrast to Mexico’s recent effort to buy back some of its debt, which turned out to be a disappointment.

“This is an opportunity for the country to reduce its stock of debt and get back to the negotiating table,” said one U.S. banker.

As previously announced, Bolivia would repurchase the debt at 11% of face value. The offered debt represents about 47% of its $660-million foreign bank debt.

The country’s ability to service its debt has been cramped by a drop in net exports to less than $300 million a year from about $1 billion in 1984. Bolivia also was badly hurt by a tin market scandal in 1985 which caused prices to crash. Prices on its natural gas exports to Argentina have fallen too.

Bolivia had warned creditors that, due to the seriousness of its cash squeeze, banks that did not opt for the buyback might have to wait up to 25 years to get their money back.

In the event, U.S. banks were the main players in the repurchase scheme, with 17 of them submitting bids representing a third of the $308 million total. A handful of British, Argentine, Dutch and Austrian banks also participated.

U.S. bank regulators have declared Bolivian loans value-impaired, a pessimistic rating that requires banks to build reserves against 65% of their Bolivian loans.

Most banks have written off or set aside reserves for the remaining 35% as well, which means this scheme gave them a real opportunity to get something back.

In Mexico’s case, many banks were unwilling to sell their Mexican loans at a deep discount, saying they wanted to continue to do business in Mexico and expected to be repaid eventually.

Mexican debt is trading at about 50 cents on the dollar in the secondary loan market. In contrast, Bolivian debt has traded at about 10 cents on the dollar.

The funds needed by Bolivia to repurchase its debt were donated by several countries and are being held in a special International Monetary Fund account.

Bankers said that only about $28 million in donations would be needed for the debt-repurchase program since some banks would opt to convert loans into Bolivian bonds rather than retire them for cash.

About $40 million of the $308 million in loans outstanding would be converted into 25-year, zero-coupon bonds denominated in Bolivian pesos but indexed to the U.S. dollar.