Austria's Schelling Warns Heta Creditors to Lift Lock-Up

  • Agreement may violate competition rules, finance minister says
  • Heta debt offer can't be improved before March 11 deadline

Austrian Finance Minister Hans Joerg Schelling told “hard-line” creditors of bad bank Heta Asset Resolution AG they may violate competition law if they continue to prevent other creditors from accepting a discounted tender offer for 10.8 billion euros ($11.9 billion) of Heta’s debt.

Schelling said he received feedback from creditors willing to accept the province of Carinthia’s offer for Heta’s debt after the federal government topped it up with a premium last week. He said there wouldn’t be another offer improvement and he would be “out of the picture” after the offer deadline expires March 11.

“There are some hard-liners who’re digging in their heels, while others want to do it,” Schelling told journalists Tuesday after the weekly government meeting in Vienna. “This lock-up procedure is questionable in terms of competition rules.”

Carinthia is offering Heta creditors 75 percent of face value for senior debt, and 30 percent for junior debt to neutralize guarantees it gave for the bank. Schelling last week sweetened the offer with an 18-year zero-coupon bond priced below market rates.

Creditors representing more than 5 billion euros of the debt, including Commerzbank AG, Pacific Investment Management Co. and Dexia SA’s German unit, have teamed up to reject the offer. The alliance hasn’t had any public defections since it was agreed last year, and a spokeswoman said on Tuesday that it wouldn’t be terminated now.

No Breakthrough

Schelling said he’s ready to meet representatives for the creditor groups for more talks in order to persuade opponents of the deal. Earlier discussions, including one held on Monday, didn’t lead to a breakthrough, Schelling said.

The biggest of Heta’s creditor groups have said in joint statements that they won’t accept any payout below par because they relied on Carinthia’s guarantee when they bought Heta’s debt. While the zero-coupon notes offered by Schelling will be fully repaid in 2034, they effectively raised Carinthia’s offer to around 82 cents on the euro.

Improving the bid once more, for example by shortening the duration of the federal bond as suggested by some creditors, won’t be possible because it would violate state aid rules and other legislation, Schelling said, adding that “we’re out of sweeteners.”

Creditors have until Friday to tender their holdings. If the offer fails, action will shift back to the FMA supervisor, which is in charge of Heta’s wind-down under Austria’s bank resolution law. It has until the end of May to impose a haircut on Heta’s debt, which may lead to bigger losses for creditors, according to Schelling.

Carinthia’s governor, Peter Kaiser, also repeated the province can’t increase its offer for Heta’s debt, and warned creditors of a change of tune if the bond offer fails.

“So far, we’ve been wearing velvet gloves during the negotiations,” he said in a statement. “We’ll exchange them for boxing gloves in case of nonacceptance.”

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