seychelles no longer able to service its debt
01 October 2008
The Seychelles said yesterday it would default on an October 3 interest payment on $230m of bonds maturing in 2011 because its currency reserves were heading towards “near-exhaustion”. The government was seeking a restructuring of $800m of foreign debt and an International Monetary Fund (IMF)-backed plan to shore up its finances, it said. Rising prices for oil and other commodities, coupled with a decline in tourism amid slowing global economic growth, has government revenue falling just as the cost of borrowing rises. The Indian Ocean nation has a debt burden equal to about 175% of gross domestic product, among the highest ratios in the world, according to the government.
“We have had to acknowledge that our country is no longer able to service its debts on existing terms,” Finance Minister Danny Faure said. “We must therefore work with our creditors, and with their support find the best way to place our debt on a sustainable footing.” he said yesterday. Government officials held talks with the IMF three weeks ago after the country defaulted on € 54,8m of privately placed securities in July. It would hold “advanced discussions” with the IMF this month for a stand-by arrangement to be considered by the IMF executive board next month.
Standard & Poor’s cut the country’s foreign-currency credit rating on August 7 to SD, or “selective default”, from CCC, a high-risk or junk level, eight steps below investment grade. The yield on the Seychelles’ dollar-denominated October 2011 security was at 26,84% yesterday, down from 46,59% a month ago. The price of the 9,125% note has fallen to 65c from 92,5c on July 31.
The former British colony is made up of an archipelago of about 115 islands scattered over more than a million square kilometres in the western Indian Ocean. It has a $710m economy and a population of 84000. Seychelles’ private placement and dollar-denominated bond sale were arranged by Lehman Brothers Holdings, the New York investment bank that collapsed this month. Bloomberg