Combat-Ready Dexia Wouldn't Even Take 99% Offer for Heta's Bonds

  • German unit has backing to block Austria province's debt plan
  • Carinthia, Heta creditors on course to spend years in court

Dexia SA’s German unit won’t waive any of its claims against Austrian bad bank Heta Asset Resolution AG and is ready to spend years in court fighting the "injustice" of a proposed bail-in, the unit’s chief executive officer said.

"Even a 1 percent discount would be a partial default by a state," Friedrich Munsberg, the CEO of Dexia Kommunalbank AG, said in an interview in Vienna. "We’re ready and able to fight until the very end because we won’t accept this injustice."

The Austrian province of Carinthia, a former owner of Heta’s predecessor that still guarantees 11 billion euros ($12.2 billion) of the bad bank’s debt, is offering to buy it at a discount. It would pay 75 percent of face value to senior creditors and 30 percent for junior debt, saying it can’t afford more. Creditors have until March 11 to accept the proposal.

Munsberg leads a group of creditors owning about 1.5 billion euros of Heta’s debt. The group agreed with others, who together control enough to be able to block Carinthia’s plan, to not to tender their holdings.

Austrian officials haven’t blinked, with Finance Minister Hans Joerg Schelling predicting a decade in court if Carinthia’s plan doesn’t succeed. Munsberg said that instead of accepting the 75 percent offer, he wants to negotiate a proposal with Schelling about an extension of Carinthia’s liabilities that would result in a full payout to creditors. He declined to outline his plan in detail before presenting it to Schelling.

If Austria doesn’t agree to talks and the bond offer fails, creditors won’t have a choice but go to court, Munsberg said. "Not only do we have a legal right to a full repayment, we also have a moral right."

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