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Debt Exchange: current economic crisis would worsen if individual bondholders fail to take part – government

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The government is warning that the failure of eligible individual bondholders to take part in the domestic debt exchange would worsen the current economic crisis.

In the Amendments to the Invitation to Exchange, it therefore encouraged each bondholder to voluntary tender its holdings.

“The success of this operation is critical to restoring macro-economic stability. Were the participation to the exchange too low, the government’s efforts to resolve the current crisis would be jeopardised, as well as the government’s capacity to honour its commitments and repay its debt.”

The government meanwhile announced a 2% cash free for participating holders of bonds that are expected to mature in 2023.

This is to compensate for the maturity extension.

It said the investors will only get new bonds maturing between 2027 and 2033.

“Given that holders of Eligible 2023 Bonds are being asked to extend the maturities of what are now effectively short-term instruments, investors will receive a cash tender fee of 2% of the outstanding amount of such 2023 Bonds tendered and accepted, to compensate for the maturity extension”, it explained.

Government has however decided to proceed with paying interest accrued up to January 24, 2023 to all Eligible Holders participating in the exchange, in a capitalised form. This means that the accrued interest will be added to the notional amount of the new bonds.

The Invitation to Exchange also stressed that there are 12 new bonds in the Amended Exchange, instead of four, with a new coupon rate structure.

“Investors indicated a preference for having more numerous bonds with standard bullet bonds, instead of fewer, larger and more liquid bonds (the previous structure), which has been reflected in the amended exchange. In the same spirit, the amended coupon structure for the new bonds has been designed to mimic a yield curve with a standard shape”.

Meanwhile, treasury bills still remain excluded from the domestic debt operations.

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