Magazine article American Banker

South Africa and Creditors Reach Tentative Deal on Repayments

Magazine article American Banker

South Africa and Creditors Reach Tentative Deal on Repayments

Article excerpt

LONDON -- South Africa is to repay 260 international creditor banks approximately $500 million by March 31 as a first step toward what is hoped to be a "credit normalization" of its international financial relations.

This was announced here on Thursday as part of a "broad consensus" reached at a meeting between South African representatives and 30 of its international creditor banks on repayment of about $14 billion in debt.

The announcement was made to a crowded press conference by mediator Fritz Leutwiler, former president of the Bank for International Settlements and the Swiss National Bank. Mr. Leutwiler stressed that there was no formal agreement as yet but merely a consensus based on proposals he had put to the two sides.

"This is not a rescheduling agreement," he said. "It is an interim arrangement as a step toward restoring normality in South Africa's financial relationship. No bank is committed at this stage or has signed any agreement. What we have is a broad consensus only."

Mr. Leutwiler had threatened to resign as mediator between South Africa and the banks if no progress was made.

Since last August, South Africa has met interest service but has imposed a standstill on repayment of principal due to foreign banks and other creditors. South Africa acted after international banks began refusing to roll voer short-term credits in a sign of concern that the anti-apartheid unrest there could endanger foreign investments.

Of the $14 billion owed to banks, about $10 billion fell or falls due during the period from Aug. 28, 1985, through March 31, 1986. In addition, South Africa has outstanding debts of $10 billion due to nonbank creditors with which separate discussions are now due to begin.

Under the Leutwiler proposals, the banks would roll over 95% of the $10 billion until March 31, 1987. At the option of the creditors, South Africa would repay 5% -- about $500 million -- by no later than March of this year.

Mr. Leutwiler said interest rates on the bank debt are to be negotiated between South Africa and the individual creditor banks, subject to a ceiling of not more than one percentage point above the rates applying in March 1985.

Another element of his proposals is that creditor banks "should be enabled to provide medium-term loans of not less than three years instead of rolling over to March 31, 1987." Such medium-term loans would take the form of lending against negotiable notes issued by South African banks. This form of lending would not be subject to interest penalties. The objective, Mr. Leutwiler said, is to encourage South Africa and its bankers to improve the structure of the country's external debt, too much of which consists of short-term debt. …

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