True to its reputation for intransigence, North Korea has made no signs of wishing to start repaying or rescheduling its debt. But such defiance hasn't prevented its debt prices rising by 15% on long-shot speculation that North and South Korea could reunite and as a result of generally positive sentiments on emerging markets.
Quick off the mark has been Banque Nationale de Paris (BNP), which last month issued the first tranche of its vehicle for turning North Korean debt into a tradeable bond under the name of NK Debt Corporation.
This vehicle promises to solve some of the settlement problems associated with North Korean debt, of which BNP is itself a significant holder. The bond has been well received by investors even though it is not clearable through Euroclear.
At the end of 1996, North Korean debt was trading at a 20% discount to face value, which has since soared to 35% and could well go higher, say market watchers. The amount of debt covered by the BNP bond issue is now one-third of the $800 million outstanding.
"BNP is issuing this bond first and foremost for commercial reasons, but the broader objective was also to create a cost-efficient, liquid market in this debt.