Defaulted Ivory Coast Eurobonds Rally Before Investor Talks

Ivory Coast’s $2.3 billion of defaulted Eurobonds jumped to an eight-month high on speculation a meeting with investors today will be a first step toward resuming payments.

The west African nation’s bonds due in 2032 surged 15 percent in the biggest two-week advance since April. The Eurobonds gained 0.7 percent to 56.448 cents on the dollar as of 8:30 a.m. in London, cutting the yield nine basis points to 12.441 percent, data compiled by Bloomberg show. Finance Minister Charles Koffi Diby is scheduled to speak at a meeting with investors at 2:30 p.m. in London.

The world’s largest cocoa producer hasn’t paid interest on its international debt since January 2011 when the refusal of former President Laurent Gbagbo to cede power after the November 2010 election sparked a civil war. President Alassane Ouattara took power last May and Norbert Kobenan, an aide to the finance minister, said in November the country may resume interest payments in June 2012.

Investors are expecting “not just a resumption of the coupons but a potential capitalization of the missing coupons,” said Jeremy Brewin, a fund manager who holds Ivory Coast debt among about $4 billion of assets for Aviva Investors in London. The bond price “is effectively assuming a very positive outcome,” he said in a phone interview.

Ivory Coast issued its Eurobonds in April 2010. The election seven months later triggered a five-month conflict and caused as many as 3,000 deaths, according to the International Criminal Court. Gbagbo was arrested in Abidjan, the commercial capital, in May and faces charges of crimes against humanity at The Hague, Netherlands-based court.

Brady Default

The government will discuss finding an “acceptable level” of debt that will allow for repayment while financing development, Bruno Kone, the government’s spokesman, told reporters in Abidjan, on Jan. 18.

“I’m not expecting any big announcement,” said Stuart Culverhouse, chief economist at Exotix Ltd., a London-based investment bank which trades the Eurobonds. “It would be a pleasant surprise if they did say something” but “having a meeting with investors in London I don’t think is probably the right vehicle to do that,” he said by phone on Jan. 20.

Last year’s default was the second for Ivory Coast since 2000 after it reneged on $3.5 billion of Brady bonds, securities created as part of a debt restructuring plan for developing countries and named after former U.S. Treasury Secretary Nicholas Brady.

Back to Growth

The 2032 Eurobonds traded as high as 58.883 cents on the dollar in May as Ouattara was inaugurated as president. His party won a majority of seats in the first election of lawmakers in a decade last month. The economy is set to grow 8.5 percent this year after a 5.8 percent contraction in 2011, according to the Finance Ministry.

“The fact they’ve actually come out and invited investors to meet with them is a very positive sign,” said John Bates, head of fixed income at London-based Silk Invest Ltd., which manages $130 million and sold its holdings of Ivory Coast bonds in January 2011.

“If they can show evidence the economy is back on track and that the coupon payments are going to be resumed and the missed payments are somehow going to be repatriated, I don’t see any reason why the bonds shouldn’t trade up back towards” levels above 60 cents on the dollar, Bates said.

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