Exotix Developing Markets Guide by Exotix Capital

Author:Exotix Capital
Language: eng
Format: epub
ISBN: 9783030058678
Publisher: Springer International Publishing

Source: Iraq Debt Management Office, Bloomberg

Note: Figures in () show % of total incl. outstanding arrears

aUS$1bn eurobond issued August 2017

Rescheduling History

Over 1975–1980 Iraq was a donor and creditor country with estimated foreign currency reserves of US$36bn. Indebtedness built up over the 1980s, over the period of the 1981/1985 Development Plan, when Iraq made large scale infrastructure and import commitments just as oil exports and prices collapsed, shifting the country into large trade deficits. This financial reversal was so sudden that by 1982–1983 Iraq was forced to arrange new external financing (1982 UBAF US$500mn syndicated loan) and the deferment of contractually due payments, and this availability of financing serviced the growing debt burden. By the time of the First Gulf War in 1990, Iraq did not have enough funds to meet all debt obligations so only selectively made payments, favouring some creditors over others. Over this period, Iraq entered into a long list of agreements, protocols and arrangements with nearly all of its trade creditors. UN sanctions following the First Gulf War not only prevented the Iraqis from making payments, but also restricted the country’s foreign currency earning capacity (aside from ‘oil-for-food’ arrangements) so that it could not service debt. This period was characterised by accumulating past due interest claims. By the end of the Second Gulf War in 2003, Iraq’s debt was estimated at US$119bn (principal and past due interest).

After the Second Gulf War, attention turned to debt forgiveness for Iraq. Various advisers were appointed: in March 2004, Ernst & Young were appointed by Iraq’s Coalition Provisional Authority as manager of the Government of Iraq Debt Reconciliation Office; Clearly Gottlieb was selected by the Interim Government of Iraq in July 2004 as Iraq’s International Legal Advisor in the Restructuring of External debt; Citigroup Global Markets & J.P. Morgan Securities were appointed in January 2005 to act as Iraq’s joint global co-ordinators in the restructuring of the claims of private commercial creditors (including financial institution creditors) against Iraq; also in January 2005, Lazards were appointed as advisor on debt talks with Iraq’s 17 Paris Club creditors and Houlihan Lokey Howard & Zukin were appointed to assist in talks with other creditors. Crucially, in order to facilitate a restructuring of various diverse commercial claims and avoid expensive litigation, a UN Security Council Resolution was passed in 2003 to prevent creditors attaching oil shipments.

Although creditors agreed that a level of ‘sustainable’ debt was their target, even among Paris Club creditors estimates of the actual level of forgiveness needed to achieve this level ranged from 50% of face (France) to 100% (US). Political considerations as well as debt sustainability parameters influenced these views. By the time of the announcement of a commercial debt settlement offer in July 2005, the total amount of Saddam-era claims held by commercial and bilateral creditors was estimated at more than US$125bn. Commercial creditors were estimated to hold claims totalling cUS$20bn. At the first Iraqi creditors’ meeting on 3 May 2005, organised by Citigroup, the most important conclusion was that all the different types of claims would be dealt with in the same way.

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