- Total tender amount not set yet, Berenberg sees 66%-70%
- Dexia-led creditor group demands full repayment of Heta bonds
The Austrian province of Carinthia, creaking under debt guarantees equivalent to many times its annual budget, told creditors of its former state bank that it can pay about a tenth of the outstanding bonds it had pledged to support.
The province will contribute 1.2 billion euros ($1.3 billion) to a buyback of the 11 billion euros of Heta Asset Resolution AG’s bonds that it’s backing, the government said in a Nov. 26 statement after a parliament meeting in Klagenfurt. Adding in the money expected to be recovered in Heta’s wind-down, the offer is probably worth 66 percent to 70 percent of face value, Berenberg Bank analysts led by Philipp Jaeger said in a note to clients on Friday.
That won’t be enough, said one of the largest creditor groups, led by the German unit of Belgium’s Dexia SA. “It’s obvious that par-investors like us, who bought the bonds in safe times for 100 percent, expect a 100 percent redemption,” said Friedrich Munsberg, the chief executive officer of Dexia Kommunalbank Deutschland AG, in a telephone interview.
Heta is managing the remnants of Hypo Alpe-Adria-Bank International AG, one of the most damaging Austrian bank failures after the 2008 financial crisis. Austria was forced to spend billions of euros to prop up Hypo Alpe after it had to nationalize the bank in 2009, angering voters and undermining the country’s credit ratings.
Carinthia guaranteed Hypo Alpe’s bonds when the province was run by the late Governor Joerg Haider, a man who praised Adolf Hitler’s employment programs and called Germany’s SS fighters “decent people of good character.” The guarantees have made the wind-down process more complicated because sharing the losses with bondholders would lead to significant claims against the province.
Carinthia’s government, meanwhile led by center-left Governor Peter Kaiser, said a better offer won’t be forthcoming. “There can’t be and there won’t be more,” said the province’s finance secretary Gaby Schaunig. “Every objective creditor will come to the conclusion that it’s sensible to take the offer.”
Heta’s biggest creditor group said last week that they would give Carinthia more time but also insisted on full repayment. It added that it expected the tender offer to fail. The group, led by Commerzbank AG and Pacific Investment Management Co., declined to comment on Friday.
The tender offer for the guaranteed bonds is meant to stave off the threat of a Carinthian insolvency. It will be made by a public trust named Kaerntner Ausgleichszahlungs-Fonds, which was established for that purpose earlier this month and will be financed by loans from the Austrian Treasury.
Carinthia will dissolve its “Fund for the Future,” which contains the proceeds from the sale of a majority stake in Hypo Alpe, to pay back the federal loan, Governor Kaiser said in an interview with ORF radio on Friday.
The fund, plus real estate and company holdings that can be sold, add up to 515 million euros, Schaunig’s spokeswoman Eva Matticka said. The remainder is the maximum amount of debt Carinthia can take on while still fulfilling its duties, and it was measured against “international standards,” Kaiser said, without elaborating.
The Carinthian assembly is due to meet Dec. 10 to approve the tender kick-off. Opposition parties, including the group that was led by Haider at the time, said they won’t support the offer.
Austria’s parliament on Oct. 15 approved legislation allowing the federal Treasury to help Carinthia fund a discounted purchase of Heta’s bonds. The law stipulates that the offer should consist of two elements:
- The expected recovery from selling and winding down Heta’s assets. Heta published a presentation to investors last month that suggests a recovery rate of 56 percent by 2020. Creditors would benefit from an earn-out clause should Heta’s wind-down yield more than expected;
- And a contribution from Carinthia that’s commensurate with its “economic capacity.”
The bond purchase can only go through if two thirds of bondholders accept the offer, in which case holdouts can also be forced to accept under the law regulating the bond offer. The two biggest creditor groups say that violates Austria’s constitution.
An offer in the 66 percent to 70 percent range given by Berenberg would be roughly in line with the market value of Heta’s most traded bonds. Heta’s 1.25 billion-euro 4.25 percent bond due Oct. 2016 is currently bid at 67.2 cents to the euro, according to Bloomberg data. Its 2 billion-euro 4.375 percent bond due Jan. 2017 is bid at 67 cents.