FRENCH FINANCIAL DEAL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88B00443R001203970081-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 4
• Document Creation Date: December 20, 2016
• Sequence Number: 81
• Content Type: MEMO

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Routing Slip
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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
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? 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-
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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 ..
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