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Tsar's Party Foreign Debt Swap under Attack in Bulgaria

Date: 23.09.2009

Members of parliament from the ruling GERB party and its right-wing partners have demanded a probe into a controversial foreign debt restructuring, which was initiated in 2001 by the centrist government of former Tsar Simeon Saxe-Coburg.

Analysts had voiced opposition to the swap shortly after it was proposed, saying that it is impossible to profit from a deal which restructures debt in dollars into bonds in expensive euros. They warned that there are vested interests involved in the deal, which are kept secret from the public.

The Bulgarian foreign debt swap auction was launched on March 21, 2002. Bulgaria set yields, which suggested the government was reluctant to pay large premium to market prices. The yield on the new dollar bond offering as part of the exchange was 9,1%, while the yield spread on the euro denominated part was 2,75% over the January 2012 German Government Bund, which then yielded about 5,23 %.

Brady bond owners could swap either into euro Global bonds dated 2013 or dollar Global bonds dated 2015. They also had two further options - cash subscription to euro bonds or cash payment for Brady buy-backs.

Minimum clearing prices for the 2011 Interest Arrears bond in the swap were USD 88,50 per USD 100 of bond for both the dollar and euro swap and USD 88, 25 for cash.

On March 13 the same year, the majority in Bulgarian parliament ratified the contracts with JP Morgan and Salomon Smith Barney on Bulgaria's foreign debt restructuring.

The then Finance Ministry said the exchange of part of Bulgaria's Brady bonds with new Eurobonds has resulted in net nominal reduction of Bulgaria's foreign debt of some USD 125 M.

The new eurobonds are with fixed interest rate and will be floated in two issues, one in euro, which will mature in January 2013 and another one in dollars, to be paid in January 2015.

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