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Approved For Release 2007/06/08: CIA-RDP88B00443R001203970081-4 20 21 DDI DDO DDS&T C/PAD/OEA 7 DATE P Ir a Uc. INITIAL AJ [ DECO, SUSPENSE . EXECUTIVE SECRETARIAT Routing Slip Approved For Release 2007/06/08: CIA-RDP88B00443R001203970081-4 Approved For Release 2007/06/08: CIA-RDP88B00443R001203970081-4 ? 6 October 1982 MEMORANDUM FOR: National Intelligence Officer for Economics FROM: Director of Central Intelligence SUBJECT: French"Financial Deal ~gCltla9 n~~~a~ Before I go to an NSC meeting at 4:00 today, I would like to have the details on the $4 billion French financial deal in this article. The article indicates that a number of US, Canadian and West German banks agreed to underwrite $100 million. Where is the rest coming from? I was told that Libyan accounts had taken up most of the $4 billion commitment. Let me know what information is available on this and how we can get fuller and more confirmed information. William J. Casey Approved For Release 2007/06/08: CIA-RDP88B00443R001203970081-4 Approved For Release 2007/06/08: CIA-RDP88B00443R001203970081-4 ? October 1982 0 iks Object to Wording of French Loan Accord Inier,wtional Herald Tnb we.' PARIS - A number of U.S.; Canadian and. West German :banks that have agreed to underwrite S100 mi ole f -Fiance's S4-billion Eurocredit are objecting to. the wording of the- -loan agreement proposed by the French Treasury. "There's a lot of arguing about technicalities," - acknowledged a government -official, who dis- SYNDICATED LOANS ,:missed rumblings about a. mass pullout .as a mere bargaining chip by bankers trying to force accept- ,?ance of their conditions. But a number of bankers insist - that they will have to reassess their :underwriting commitments if the :-government fails to give them the wording. they want. There is no :.way to determine whether bankers -are merely rattling sabers or really '-would pull out of the loan at the .last minute and risk the lasting '..hostility of the government . What irks bankers is not a fear , of imminent financial crisis in L )France but rather the precedent it ,could set- for other sovereign bor- 'rowers to seek loosely worded loan agreements. Not Necessarily a Threat ,r The dispute does not necessarily `threaten the French loan. The 16 ...banks in this group are not unani- mous in warning they would feel , forced to withdraw if their de- -mands are not met. Even if all did pull out, the loan could still com- fortably go forward, as 55 banks have agreed to underwrite it These commitments total $5.7 billion. The government, which wants .the money to bolster its reserves to 'defend the franc on the foreign ex- .change market, has.chosen to keep . the loan's size unchanged -mean- -Iing that ? the oversubscription :would be used to reduce the amount of the loan each bank If some banks drop out, the' oversubscription could be used to, Till the gap. By Carl Gewirtz- The dispute concerns clauses that bankers consider standard in Euromarket loan agreements but that are not contained in the draft French document The French' note that the contested clauses were not contained in the-previous Euromarket loan for Fiance, syn-? dicated in 1974, and were also ab- sent in the French guarantee for a $275=million loan syndicated in April' for Caisse . Nationale des Telecommunications. The French also maintain that while the clauses -serve a valid function in protecting lenders in a loan signed by a corporate entity, they make no- sense in a loan for a sovereign state - a point some bankers challenge: . Missing Clauses The missing clauses are the pan passu*negative pledge clause and the cross default clause. The first is a statement that the loan shall not be subordinate to any other loan in terms of payment or security and that "no future. loan will be better secured unless such security is ex- tended to this loan. This means, for example, that France could not raise 'a can using its-gold hoard as collateral unless - it backed the other loan with gold. The cross default clause would make this loan immediately pay- 'able if France defaulted on any other loan or- declared a moratori- um on payments of interest and principal. What worries bankers is that without such a clause France could declare a . moratorium on 'loan payments and still be able to draw on the loan. - There is also no automatic de= fault clause in the proposed lan- guage. If France failed to meet its payments schedule, the agent bank, 15 days later, -would be au- thorized to poll thesyndicate for a "declaration of default. Two-thirds of the lenders would have to agree . to call a default Foreign. bankers say- they want this reduced to 50. percent, as the nine nationalized. `French banks participating in the loan equal half the number needed to block such a declaration under the two-thirds rule: Also missing from the proposed contract is the waiver of sovereign immunity whereby the government declares its willingness to be sued in court for nonperformance.-This currently ap to be the only is- sue on whi France is willing to give ground, and the clause is ex- pected to be included in the loan contract- CDmpzrison3 With 1974 Rejected Bankers reject comparisons with the 1974 loan contract Just as the financial terms are different, they say, so should the legal. terms dif- fer. "The market has evolved since then, the circumstances are no longer the same," says- one banker. In addition, he notes? this loan is , considerably larger than the $1.5 . billion raised in 1974. More- im- portant, the new loan will used the government is committed to drawing at least one-third of it -whereas the 1974 credit was not - - -Bankers also reject the govern-- { meat's comparison with the docu- mentation for CNT because of the :much smaller size of that loan. l-They also insist that just as France . is ' attempting to use that example as a justification for its present - stand, other. governments will use the French example to exact simi- lar concessions if France gets its way. . Elsewhere, Indonesia has man- dated four banks to arrange a $250-million, 10-year loan at a thin 3A point over. the London in- terbank offered. rate. The margin and maturity are. identical: to earli- er loans, but the amount is smaller - the only concession Indonesia has had to make to the change in conditions since it last tapped the market, in. March. - Managers dismiss reports that the terms represent a commitment they had made before lending con- ditions generally began to tighten. Explaining why Indonesia is pay- ing a margin of 3/e percent, com- pared with the ' percent demand- ed of France, one manager says: We did it with our eyes open. Call it a statement of our belief where the market is for Indonesia and a reflection of our ongoing relations with the country." _ - No Wide Syndication - Whatever more lucrative busi- ness"the-.managers hope to win%i the future, they will not attempt a wide syndication. Japanese banks, . with Bank of Tokyo acting as agent for the loan, will take 50 per- cent of the loan. The remainder will be offered to a small group. In addition, a group of Mideast banks is reported to be planning to underwrite $75 million of floating rate notes for Indonesia.. t- Approved For Release 2007/06/08: CIA-RDP88B00443R001203970081-4 Approved For Release 2007/06/08: CIA-RDP88B00443R001203970081-4 ? The Kaeau Development Bank,, seeking $500 million, is said to . have postponed plans to tap. the marketuntii the Indonesian loan is completed-in the hope that a suc- cessful syndication will enable it to bargain for-better terms. Thailand, which last March paid a split 34- Y point over Libor for . 10-year money, is reported to be sounding out the market for terms on a new $200-million loan.- - 4.. In Latin America, bankers say they are discussing the possibility of raising a jumbo short-term loan for Argentina but that there are formidable conditions to over- come. Among these are an Argen-. tine settlement of its arrears with British banks and an agreement to borrow from : the International Monetary Fund, -which implies agreement to meet IMF condi- ; tions. Bankers say they are studying Venezuela's request to convert $8.8 billion of short-term state agency debt into longer-term loans with maturities of three, five or' seven years. Venezuela is also offering to guarantee these longer-term loans. While terms have not yet been spelled out, bankers believe Vene- zuela will have to pay a margin of I point. over Libor for three-year money, 1'4 for five years and 1' . for seven years. - ' Chile's copper corporation Coo- delco has begun negotiations for a "club" loan of $300 million, bank- ers . report. Meanwhile, an IMF mission arrived in Chile last,week to negotiate a loan of $860 million, including a standby credit of $450 million. Hungary is reported to be well on the track to arranging. a loan - agreement with the IMF, and in the interim has asked the Bank for International Settlements in Basel . $ to provide a further $300 million in short-term financing. The re- quest is likely to be granted. Yugoslavia's request -- $500 million for three years - is for longer than the BIS usually pro- vides, but central bankers note. there is strong support and sympa- -' thy for-Yugoslavia. ? Zaire is again moving to the limelight as a trouble spot. The IMF suspended its loan facility in July, and Zaire's advisers -- Leh-, man Brothers Kuhn Loeb, Lazard : Freres and S.G. Warburg - say they can serve no useful purpose in the present circumstances "until certain decisions are taken." Their contract expires in July. Zaire's major bank creditors met in London Friday to discuss the . situation and have dispatched a three-man delegation to Kinshasa. The banks received only $10 mil lion of the $44.5 million that was due on April 1, and only $3 million of the $31 million that was due on Oct. 1. All of the October payment and about four-fifth of the April payment were interest charges. Banks are usually willing to roll over capital repayments so long as interest payments are kept current. Once the interest is not paid, the banks. must admit the debt is bad and set aside provisions for it. Meanwhile, a report circulating in Belgium, written by a former Bundesbank official who served as adviser to Zaire's central bank, is causing a storm with its charges of rampant corruption (allegedly in- volving some prominent Belgians) among Zaire's ruling class and a complete disregard for repaying external debt of nearly $5 billion. An annex to the report, written by. a former Zaire government official living in exile, alleges that Presi- dent Mobutu Sese Seko's personal fortune almost equals the foreign debt .. Approved For Release 2007/06/08: CIA-RDP88B00443R001203970081-4