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Capital Markets

Seychelles at risk of defaults

One deal apologists for Lehman Brothers might not cite was its raising almost $300 million for an island nation of just 80,000 people. Indeed, the Seychelles looks a likely candidate for the title of Africa’s first sovereign Eurobond defaulter of the new millennium.

The Eurobond interest payment due at the beginning of October is Seychelles’ first since it defaulted on a €55 million private note this summer. But even if the state meets this payment, renewing the $230 million Eurobond through commercial means when it matures in 2011 looks likely to be difficult. Standard & Poor’s downgraded the government to Selected Default this summer. At the end of September, the Eurobond was still rated CCC–, meaning the agency thinks the likelihood of a default within 12 to 18 months is more than 50%.

The Seychelles’ funding needs are far greater than its current account receipts, and the central bank has only $40 million in reserves.

Honouring interest payments now, say sources, would seem to be only putting off an inevitable restructuring of the debt, and indeed the government is requesting a stand-by arrangement from the IMF. The government has hired legal and financial advisers on the matter.

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