Austria Says Heta Creditors on Their Own After Offer Refused

  • Schelling says Austria `exhausted all possibilities' on Heta
  • Federal govt will continue to fund Carinthia's regular budget

Austrian Finance Minister Hans Joerg Schelling told creditors of bad bank Heta Asset Resolution AG they are on their own trying to get repaid after they rejected a discounted offer for the debt by the province of Carinthia.

The federal government won’t take on the liabilities of Carinthia, whose guarantees for Heta’s debt still add up to 11 billion euros ($12 billion), or five times its annual budget, Schelling told journalists in Vienna. He spoke minutes after Carinthia confirmed the Heta bond offer wasn’t accepted by the necessary two thirds of creditors.

“The federal government has exhausted all possibilities,” Schelling said. “It’s the creditors who couldn’t accept the offer that have failed.”

Carinthia offered to buy Heta’s debt at a discount, effectively asking creditors to share the losses of the nationalized lender with Austrian taxpayers, who already injected 5.5 billion euros, and former shareholders. The province’s debt guarantees go back to the days when it owned Heta’s predecessor, Hypo Alpe-Adria-Bank International AG.

A group representing about half of the debt had already said Friday its members rejected the buyback offer. Carinthia’s Kaerntner Ausgleichzahlungs-Fonds trust, which formally made the offer, didn’t say how many creditors had tendered.

Klagenfurt Lawsuit

“Several investors” filed a lawsuit in Carinthia’s capital on Monday to ensure that the province “honors its obligations,” the creditor group said in a statement. Its spokeswoman declined to elaborate on the action. The creditors reiterated that a solution for Heta’s debt should be found “in a dialog” with them.

Further lawsuits are expected and Carinthia is prepared for any kind of court proceedings, Finance Secretary Gaby Schaunig said at a press conference that was broadcast online.

Carinthia had offered 75 percent of face value for senior creditors and 30 percent for juniors. Schelling later topped that up by way of a zero-coupon bond issued by the Treasury, effectively raising the offer to around 82 percent.

Schelling said Carinthia could get the funds it needs for its day-to-day operations from the Treasury. But the offer he made to lend an extra 1.2 billion euros to fund the tender offer expired with the bid, he said.

Further talks with Heta’s creditors are up to Carinthia, as the federal government has no mandate for such negotiations, he said. Carinthia’s governor, Peter Kaiser, said the province is going to wait for the FMA regulator to impose a haircut on Heta’s debt and use the decision as a basis for any further action.

“The fact that Austria and Carinthia have ruled out an improved offer is mainly due to negotiating tactics,” Berenberg bank analysts led by Philipp Jaeger said in a note to clients. “We consider it possible that there will be new talks in the spirit of reaching a quick solution.”

Dismissed Calls

Schelling dismissed calls by the leaders of the powerful Austrian provinces of Tyrol, Upper Austria and Lower Austria over the weekend, warning him that an insolvency of Carinthia may have a fallout that’s more expensive than just bailing it out.

“I don’t think it’s possible for the other provinces to decide that the federal government has to pay for this,” Schelling said.

Heta has turned into a burden for Austrian taxpayers and a source of acrimony since its emergency nationalization six years ago. Schelling tried to share losses with Heta’s creditors after three of his predecessors failed to come to grips with the lender. When he halted further capital injections, he triggered the first bank failure to be dealt with under the European Union’s new bail-in rules. A debt moratorium has been in place since March 1, 2015.

The FMA watchdog, which is in charge of Heta’s wind-down, has until the end of May to force losses on the company’s debt. Under Austria’s bank resolution rules, the regulator can also extend the liabilities to match them to the time line of Heta’s wind-down. That procedure faces the next test on Friday, when a Frankfurt court is due to decide whether the moratorium is in line with European bank resolution rules.

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