Commercial creditors holding letters of credit (L/Cs) that defaulted under Saddam Hussain's regime in Iraq have agreed to a settlement entitling them to around 60 per cent of the face value of the credits.

The settlement announced in late December is considered an important phase in restructuring the huge debt burden accumulated by Iraq during Saddam's regime.

Debt swap

The group of known commercial creditors, who are owed around US$14 billion, have accepted a debt-for-debt exchange offer co-managed by Citigroup and JPMorgan.

The commercial debt includes bank loans as well as defaulted L/Cs owed to claimants in at least 50 countries.

Towards resolution

The settlement follows cash buyback settlements agreed with some smaller private creditors. A year ago the Paris Club of leading creditor nations agreed to write off 80 per cent of about US$39 billion of sovereign debt owed to club members.

Iraq has yet to restructure all of its estimated US$120 billion debt. Negotiations with non-Paris Club governments, including Iraq's neighbours in the Gulf, are not yet concluded.

Iraq's debt restructuring is an important step towards the country gaining re-entry to the international financial community.

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