Austrian state asks creditors to slash debt to avoid bankruptcy

20th January 2016, Comments 0 comments

Austria's cash-strapped state of Carinthia asked creditors Wednesday to write off some of the debts owed by its stricken state lender, in a bid to avoid possible bankruptcy.

Carinthia said it was willing to buy back 11 billion euros ($12 billion) of bonds issued by the now defunct Hypo Group Alpe Adria (HGAA) at 75 percent of their face value.

In other words, the state is asking creditors to accept 3.2 billion euros in losses.

Several bondholders, including Germany's Commerzbank and the French-Belgian Dexia group, have in the past said they would refuse any reduction in their claims, known as a "haircut", and even challenge the matter in court.

A rejection could potentially bankrupt Carinthia, a small state of 500,000 inhabitants already saddled with 4.8 billion euros worth of debt.

K-AF, a special public trust set up by Carinthia, said in a statement it would submit an official offer Thursday to creditors of "bad bank" Heta Asset Resolution, the wind-down unit for HGAA.

The bid, which stands until March 11, needs to be accepted by at least two-thirds of the creditors.

"I believe it's an attractive offer," Austrian Finance Minister Hans-Joerg Schelling said Wednesday on the sidelines of a conference in Vienna.

The saga is a legacy of late Austrian far-right political Joerg Haider, formerly premier of Carinthia who died in 2008.

Under Haider, HGAA expanded into the Balkans as well as Italy and Germany via acquisitions and risky investments, expanding its balance sheet fourfold to some 40 billion euros.

Bavaria's state lender BayernLB bought a majority stake in 2007 in HGAA but two years later, as the global financial crisis raged, the bank came close to collapse and Austria nationalised it.

After a bitter and long dispute, Austria finally agreed last November to pay Bavaria 1.23 billion euros to put an end to the feud.

© 2016 AFP

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