Jonathan Moules

May 10, 2004

A London-based accountancy is forming a creditors committee to represent companies from across the world hoping to recover billions of dollars in debt owed by Iraq. BDO Stoy Hayward has sent letters to hundreds of businesses owed money by the collapsed Iraqi government, chiefly for engineering and construction projects in the 1980s.

Iraq owes about $127bn (£75.5bn) to creditors in about 40 countries, according to BDO. Most of this debt is for the Paris Club, which represents government credits and export guarantees, and the London Club, the equivalent body for banks.

However, BDO is appealing to trade creditors, which it believes are owed up to £13bn, to join its trade creditors of Iraq committee.

Turan Corporation, a Boston-based investment bank, which has traded more than $720m of foreign trade organisation debt, will assist BDO in designing reconciliation procedures.

Peter Daniel, a partner at BDO, said: “Some form of rescheduling [of debt] is highly likely. Trade creditors who do not join a committee for strength in numbers are very likely to find themselves at the back of the queue.”

About two-thirds of Iraq’s debt is owed to the Gulf states of Kuwait, the United Arab Emirates and Saudi Arabia. However, BDO is appealing to trade creditors as far afield as Hyundai in South Korea to join its service.

BDO claims particular experience in the Middle East, having acted as the leading advisers to the United Nations compensation committee in Geneva, the body charged with paying compensation following Iraq’s invasion of Kuwait in 1990.

Similar schemes are being offered by other companies, such as Exotix, a debt brokerage, and GML International, an investment bank, which have together formed the Iraq Creditors Club.

An investigation is under way in Iraq to calculate the exact size of the country’s debt, but this could take up to two years to complete.

Although Iraq is set to generate about $50bn in oil export revenues over the next three years, it is expected that the country’s debt obligation will be substantially reduced following a US initiative led by James Baker, the country’s envoy on Iraq debt.

Fitch Ratings said in February that Iraq’s debt levels were unsustainable and creditors would need to grant reductions of almost 90 per cent. The ratings agency added that if the debt were being serviced, interest payments alone would amount to 37 per cent of Iraq’s gross domestic product.