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Cablegate: Nigeria: London Club Debt Buy-Back Postponed To

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS ABUJA 003323

SIPDIS


E.O. 12958: N/A
TAGS: EFIN ECON PREL PGOV EAID NI
SUBJECT: NIGERIA: LONDON CLUB DEBT BUY-BACK POSTPONED TO
ALLOW ABACHA FAMILY TO PARTICIPATE


1. (U) Summary: The Government of Nigeria's (GON) attempt to
buy back $2 billion of its London Club (commercial) debt
obligations suffered a setback Friday, December 6, when a
court injunction sought by the family of the late military
dictator Sani Abacha forced a postponement of the auction to
December 20. The Abacha family holds 23 percent of the Brady
Bonds and other debt slated for the debt redemption scheme.
However, these Abacha assets were previously frozen by court
action at the request of the Nigerian government. The
Nigerian government and other claimants to the Abacha funds
agreed to allow the family to participate in the buy back.
End summary.


2. (U) Director-General of the Debt Management Office Akin
Arikawe told us that the Abacha family had bought their bonds
with money taken directly from Central Bank accounts during
the regime of the late dictator Sani Abacha. Arikawe
confirmed that the par bonds were part of the Abacha assets
frozen at the request of the Nigerian government. However,
both the DMO and lead adviser to the buy-back scheme,
Citigroup, appear to have overlooked the Abacha bonds when
they planned the debt buy back. Consequently the Abacha
family obtained a court order enjoining the December 6
auction and allowing them to participate. The court granted
their request with the acquiescence of the GON and the Noga
family, which is headed by a Lebanese businessman who was
formerly a business partner of Sani Abacha and part owner of
the Abuja Hilton. The court stipulated that the cash derived
from sale of the instruments would be frozen in a special
account. The extension of the deadline to December 20 will
also mollify other bondholders who complained about the
non-disclosure of the Abacha bonds in the initial offer
document.


3. (U) According to Arikawe, the GON and Noga family decided
it was ultimately better to include the Abacha $470 million
in par bonds (of the $2 billion total) in the auction.
Without such participation, the GON would not reach its goal
of reducing London Club debt stock/servicing by 75 to 85
percent. Arikawe was also concerned that bond holders who
chose not to participate in the auction would find their
bonds linked to the Abacha bonds which by then would make up
the preponderance of nonconverted bonds. The value and
status of these bonds could be linked, however
unintentionally, to the outcome of the GON v. Abacha court
case, opening the GON to the possibility of new court cases
from bond holders other than the Abachas. Citigroup had
participated in freezing Abacha assets and -- according to
the DMO Director General -- should have known about the
Abacha par bonds. Like Arikawe, Citigroup apparently somehow
overlooked the problem when they put the prospectus together.


4. (SBU) Arikawe confirmed that President Obasanjo consented
to inclusion of the Abacha bonds in the sale, even though
this might lead to the perception the President was giving in
to the deceased dictator's family once again. Arikawe thinks
it is simpler to accede to the request, rather than become
enmeshed in another series of drawn out court cases.


5. (SBU) Comment: Newspaper headlines about the Abacha family
stopping the auction were undoubtedly embarrassing for the
Presidency, especially after the late dictator's son Mohammed
Abacha reneged on a reported agreement to return US $1.3
billion in exchange for his release from prison and dropping
murder charges against him. Arikawe believes there will be
little permanent political fallout from the delayed buy-back
and he is likely right. Instead of criticizing the President
on this point, most Nigerians will focus on the bitter irony
of the Abachas' using the judicial process to protect their
position as a creditor and their ownership of assets
purchased with funds stolen directly from the Nigerian
treasury. Nevertheless, continuous problems with the
buy-back will hurt Nigeria's objective of reducing its
debt-servicing burden. Thus, a hitch-free December 20
auction might be the kind of Christmas present Arikawe and
the DMO are hoping for.
JETER

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