Private Creditors Form Group to Negotiate Africa Debt Relief

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By Alonso Soto
May 15, 2020, 2:34 PM GMT+2 Updated on May 15, 2020, 6:16 PM GMT+2

Private creditors representing more than $9 trillion of assets under management formed a group to negotiate debt relief for African nations, warning of the risks of a blanket approach to the process.

The so-called Africa Private Creditor Working Group will assist African countries and other debt providers to cushion the economic impact of the coronavirus pandemic on the continent, it said in a statement Friday. The group represents 25 asset managers and institutions that financed countries and corporates via Eurobond, syndicated loans and trade finance.

African countries are asking official and private creditors to temporarily suspend $44 billion in debt payments this year in order to channel scarce resources to contain the spread of the coronavirus. Some investors are concerned that countries could unilaterally halt payments, locking them out of debt markets and hurting creditors as well, said Lars Bane, director of Farallon Capital Europe LLP and a member of the group.

“There is a bit of concern in terms of a growing narrative pushing for this blanket standstill and even more concerning, debt forgiveness in Africa,” Bane said in a phone interview. “There is genuine consensus that you do have to have a case-by-case approach to have the best outcome for both the borrowers and lenders.”

The group’s members include Aberdeen Asset Management Plc, Amia Capital LLP, Ninety One U.K. Ltd., Pharo Management LLC and Greylock Capital Management LLC.

An understanding with investors that clarifies debtors’ positions on future payments could reduce sovereign-bond yields and help governments return to international capital markets soon. “Until this issue is clarified, none or very few African issuers will have market access in the near future,” Bane said.

Specter of Default

The pandemic has raised the specter of a slew of debt defaults in developing countries that had to shut down their economies to try and stop the spread of the virus. Demand for the raw materials many of the nations produce has plummeted.

For debt-relief advocacy group Jubilee Debt Campaign, private creditors will have to take losses as poor countries ramp up spending on health and social protection measures.

“Private creditors lent at high interest rates to poor countries because they claimed loans were high-risk,” said Tim Jones, head of policy at the campaign. “The risk has come home to roost and lenders need to accept they cannot make large profits from these loans.”

www.bloomberg.com