Market News

Key Points

• Bill aims to compel private creditors to negotiate quickly
• English law governs as much as 90% of poorest nations’ bonds
• Backers say it would help countries emerge stronger from default
• Opponents say it could increase future borrowing costs

LONDON, April 9 (Reuters) – A British lawmaker has introduced a private member’s bill that would set new rules around debt restructurings in a push to speed up negotiations for poor countries struggling with unsustainable debt.

Bambos Charalambous, who introduced the bill late last year, said support from other members of parliament had grown since the UK and the United States slashed aid spending. He represents the ruling Labour party in parliament, but neither it nor the opposition conservatives have thrown their support behind the bill.

Charalambous said his party may be persuaded to back it and it was being studied by some in governmemt. His effort follows similar proposals in New York state, which supporters say would enable poor nations to emerge faster and stronger from debt distress, while opponents warn they could make future borrowing more expensive.

Lawyers and investors following the debate on both sides of the Atlantic expect debt campaigners to keep pushing until some iteration of the proposals becomes law.

Trillions of dollars in bonds – accounting for nearly all tradeable sovereign debt issued by developing governments and companies on international capital markets – are issued under the laws of either New York state or England.

English law governs a disproportionate share – estimated at up to 90% – of those bonds issued by the poorest nations, such as Ethiopia and Ghana.

“It would, number one, compel private creditors to negotiate in good faith, and quickly, with the debt-distressed countries,” Charalambous told Reuters regarding the bill.

“And it could be worth billions to (the countries), and that money could be reinvested into health and education projects.”

Charalambous’s bill would allow countries to seek debt payment freezes while restructuring negotiations are underway, and also enable a stay on legal proceedings during the process.

It would also cap the claims that private creditors can make via lawsuits after restructurings are concluded, aiming to prevent holdout creditors from blocking or slowing debt deals.

STATES VULNERABLE

Currently, if a country defaults on its bonds, creditors can go to court in the jurisdiction governing the contract to force repayment; some of Ethiopia’s bondholders have said they could undertake legal proceedings.

Such court cases typically spark lengthy legal proceedings that can delay or complicate a broader restructuring.

A wave of developing countries, from Ghana to Sri Lanka, have defaulted since 2020, weakened by the COVID-19 pandemic and a global interest rate hiking cycle.

The G20 created an initiative called the Common Framework to try to bring together diverse lenders – from China to New York investors – to speed up poor countries’ debt reworks.

But it took Zambia more than three years to restructure its primary debts, and critics say the debt relief it and other nations have secured leaves them vulnerable to future crises.

No iteration of the New York bill has made it to the governor’s desk, but emerging market bond investors have begun to include clauses in bond deals that would allow them to switch jurisdictions to avoid potential curbs.

(Reporting by Libby GeorgeEditing by Alexandra Hudson)