Cuba ministers express willingness to engage with ‘legitimate’ creditors

Cuba has insisted that it is willing to talk to “legitimate” creditors about repayment of billions of dollars of Fidel Castro-era foreign debt, even though its communist government is fighting in the High Court in London to dismiss a claim by a Cayman Islands-registered fund.

Private sector bondholders, who are owed an estimated $7bn of unpaid Cuban debt dating back to at least the 1980s and interest, say that Havana has for years stonewalled their proposals for negotiations.

But two Cuban ministers indicated in rare interviews with the Financial Times a willingness to engage with creditors as Havana seeks to extricate itself from its worst economic crisis in decades.

“The position of our country is that we recognise our legitimate debts [and] our legitimate creditors. Our position is firstly to recognise them, be transparent, to always talk with our creditors and seek terms which are mutually favourable to honour these obligations,” said justice minister Oscar Manuel Silvera.

Havana secured an agreement in 2015 with the Paris Club of creditor nations to write off more than three-quarters of the debt it owed them but has reached no such deal with the private sector.

International investors would regard a restructuring agreement with private creditors as a precondition to the Caribbean nation regaining access to bond markets to help finance its cash-strapped economy, after a decades-long absence.

Cuban debt barely trades in secondary markets because of a lack of demand, and Washington’s sanctions against the Caribbean island stop US funds and US nationals from buying it. When it does trade, it fetches less than 10 cents in the dollar.

However, Havana’s immediate challenge is to resolve its legal battle with the Caymans-incorporated CRF I fund. The government is resisting an attempt by the fund to pursue it for €72mn of debt and interest.

If successful, the CRF I claim could ease the way for other private sector creditors to litigate.

CRF I is seeking to enforce claims in its own name on two pieces of Cuban debt dating to the mid-1980s. Cuba has claimed that CRF acquired the loans illegally because specific legal conditions needed for their validity were not met. It has also claimed that CRF used bribery.

“CRF is not our creditor and never has been because they did not acquire this debt validly,” Silvera said. “We hold that there was a case of corruption proven in this area.”

A former official of the state-owned Banco Nacional de Cuba jailed in Cuba for 13 years for his role in the affair gave testimony to the court in London by video from Havana and “exposed clearly how these lamentable events unfolded”, Silvera added.

David Charters, CRF chair, said he had tried repeatedly to negotiate a mutually beneficial debt restructuring with the Cubans. “We did put some quite imaginative suggestions on the table,” he told the FT. “But they either completely ignored [the] proposals or just rejected them out of hand.”

CRF has dismissed the bribery allegations. Its lawyers noted in arguments to the court in London that Cuba withdrew them from its legal case just before proceedings opened, which they described as “a belated recognition that the extremely serious allegations made . . . were baseless and should never have been made”.

Olivera, however, said that Cuba “did not ask the English judge to prove that there had been corruption . . . because that has already been proven in Cuba”.

John Kavulich, head of the US-Cuba Trade and Economic Council, a private non-profit group, said the London trial “matters far more than most people are appreciating”.

“What this lawsuit and trial has done is to focus attention on how much Cuba owes, that they don’t pay what they owe and that they are fighting paying what they owe . . . From a marketing standpoint, it’s a disaster”.

Cuba’s first deputy finance minister, Vladimir Regueiro, also in London for the court hearing, told the FT that Havana “was always ready to hold the best negotiations to seek the terms and conditions which conform with the current conditions in our economy” with creditors “who legitimately hold title”.

CRF is part of a creditor group holding $1.4bn of Cuban debt which made what it described as a “very beneficial” restructuring proposal to Cuba in 2018 but did not hear back from Havana. The group included two other funds, Stancroft Trust and Adelante Exotic Debt.

The coronavirus pandemic caused a fall of 11 per cent in Cuba’s gross domestic product in 2020, Regueiro said. Growth has been sluggish since, while annual inflation is running at around 40 per cent.

At the same time, the “unprecedented” tightening of US economic sanctions against Cuba under the Trump administration had seriously affected the economy, Regueiro added.

“Nonetheless, ratifying that position of recognising the debts which our government has, there have been important negotiations at the level of companies, institutions [and] directly between banks . . . and with the government too, with other sovereign governments”, he said.

CRF began building positions in Cuban debt from 2009, buying in the hope of making a profit on a future restructuring.

“They’ve accused us of being a vulture but if we wanted to be aggressive, we could have litigated on the whole portfolio,” Charters said. “We could have fired a $1.3bn broadside and we didn’t.”

CRF had suggested to Cuba negotiating on a cash sum for the two pieces of debt at issue with a large reduction in the amount due and funding for payments coming from a surcharge on visiting cruise ships or airliners.

A verdict is expected in around three months but the losing side could appeal to a higher court.