JOHANNESBURG - Talks between Chad and Glencore to restructure more than $1billion (R13.6bn) in debt have stalled after the African nation rejected the commodities trader's latest proposal to delay repayment of an oil-for-cash loan, according to people familiar with the negotiations.
The negotiations reached a stalemate after five months of on-and-off talks, with both sides rejecting the other’s offers and counter-offers, said the people, who asked not to be identified because the discussions are private.
Chad needs a deal - a second restructuring of its oil debt in less than two years - to avoid a looming financial crunch as it diverts more oil shipments to repay the debt. The country is in “debt distress” and the borrowings would be unsustainable without restructuring, the International Monetary Fund said in August.
The nation has kept up to date with its obligations so far, but the risk of a default is increasing, the people said.
The talks pit the world's largest commodities trader, with co-lenders including Citigroup, Deutsche Bank AG, Natixis SA and Société Gé* érale SA, against one of the world's poorest nations. The stalemate highlights the risk that the Glencore-led syndicate took by lending the landlocked African country the equivalent of almost 15percent of its GDP to be repaid via future crude oil cargoes.
Chad, with few sources of foreign exchange other than oil, is one of the most underdeveloped countries in the world, ranking 186th out of 188 in the UN Human Development Index.
Glencore earlier this month proposed a plan that would allow the country to delay full repayment to eight years from five currently and offered a grace period on the principal in 2018, together with easier payment terms in 2019, the people said. However, Chad rejected the proposal.
Glencore reiterated its offer in a letter dated November 14, but the African country doesn't plan to accept it. Further “unfair clauses in this toxic contract” needed to be reviewed, said Guillaume Foucault, a spokesperson for Chad’s national oil company, which is part of the negotiations. Among other changes, Chad is seeking a further cut in the reduced interest rate that has been offered by Glencore and its partners, Foucault said.
Glencore declined to comment.
In the letter to Chad's finance ministry, Glencore complained of “growing frustration of how the negotiations were conducted by your advisers.”
Chad hired Rothschild & Cie Banque earlier this year to advise it on the restructuring. Rothschild was not immediately available to comment, said a spokesperson for the bank.
In the letter, seen by Bloomberg News, Glencore also accused Chad of a “blatant breach of agreement” by diverting crude flows away from repaying the debt. Details were published earlier by Reuters.
The debt talks will be further complicated after Chadian President Idriss Déby, who criticised the oil-for-cash loans in June, last week fired Finance Minister Christian Diguimbaye, who was conducting the negotiations personally in Paris.
Peter Grauer, chairperson of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director of Glencore.