VZCZCXRO8658
PP RUEHPA
DE RUEHDK #0558/01 0650827
ZNR UUUUU ZZH
P 060827Z MAR 06
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 4463
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHNE/AMEMBASSY NEW DELHI 0040
RUEHYD/AMEMBASSY YAOUNDE 0205
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 02 DAKAR 000558 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/ODF, AF/EPS AND AF/W 
STATE PASS EXIM, OPIC AND TDA 
USDOC FOR 4510/MAC/ANESA/OA/MICHELINI 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ETRD IN SG
SUBJECT: UPDATE ON ICS BANKING CRISIS 
 
REF: 05 DAKAR 03189 (NOTAL) 
 
¶1.  SUMMARY: Pressure is mounting on local banks to take 
provisions against approximately USD 150 million in 
overdue loans to Senegal's failing phosphate mining 
concern, Industries Chimiques du Senegal (ICS).  So far, 
Citibank appears to be the only foreign bank actively 
moving to write off bad loans.  Some bankers are warning 
of a WAEMU-wide banking crisis.  The IMF, on the other 
hand, sees the crisis as has having moderate local impact 
and being unlikely to endanger the stability of the West 
African CFA franc (CFAF).  While all sides are agreed on 
the need for a fundamental restructuring of ICS, a 
standoff continues between the Senegalese Government, an 
Indian syndicate seeking to acquire the GOS's 48 percent 
share and Dakar's banking community on how the burden of 
recapitalizing the company will be divided.  END SUMMARY. 
 
BACKGROUND 
---------- 
¶2.  ICS is in arrears on over 90 billion CFA francs 
(CFAF)(USD 180 million) in debt, both short and long-term. 
Much of ICS's debt is Euro-denominated although ICS's 
phosphate exports are dollar-denominated.  Approximately 
70 billion CFAF is owed to local banks, amounting to 103 
percent of their net total worth.  BCEAO regulations 
require banks to ultimately make provisions against bad 
loans from a single entity that surpass BCEAO-set ratios, 
forcing banks to recapitalize and otherwise make 
adjustments to their overall lending portfolio and assets. 
Foreign-held banks may need to write down these loans in 
external books as well as account for them locally. 
 
¶3.  This week, the Government took preemptive action 
against a formal declaration of bankruptcy that could 
jeopardize ICS's overseas accounts and assets.  The 
Government sought and received a court order, freezing 
domestic creditor action against ICS for an indefinite 
period, giving the Government additional time to put 
together a financial restructuring package.  The 
Government has also put up a 10 billion CFAF guarantee on 
short-term debt.  Local banks are demanding that the GOS 
issue an additional letter of sovereign guarantee for all 
outstanding ICS debt, a move opposed by the World Bank and 
IMF.  Both the IMF and World Bank are becoming 
increasingly critical in public about growing government 
willingness to provide budget support and even bail out 
failing enterprises, including ICS, Sonacos (a privatized 
peanut oil processor) and Senelec (Senegal's electrical 
power parastatal).  However, given that a governmental 
guarantee letter would underpin restructuring of overdue 
debt, delaying the commencement of repayment of principal 
for seven to ten years, the Bank and IMF appear amenable 
to a guarantee as part of a comprehensive restructuring 
plan. 
 
¶4.  The legal status of the court order is somewhat 
ambiguous; it appears to apply to banks within the OHADA 
West African region but may not apply to foreign banks. 
The order also has no impact on a series of foreign court 
ordered seizures of ICS's overseas assets, including New 
York bank accounts. 
 
¶5.  Contacts and media suggest that the Presidency is 
pursuing other buyers and potential investors, including 
Moroccan and Chinese interests.  However, government 
officials have privately suggested they continue to favor 
the Indian offer to inject 50 billion CFAF, revitalizing 
the mine with the Government taking an increased role in 
running the rail link to the Port of Dakar.  ICS's 
minority share holders, including a syndicate of Indian 
companies and public agencies, have been noticeably quiet 
about pursuing their offer to purchase the government's 
remaining ICS shares and assume control of the company. 
They appear to be running a quiet campaign to point out to 
the GOS that although Senegalese phosphoric acid accounts 
for 20 percent of Indian's fertilizer imports, other 
overseas sellers, including Algeria, Egypt, Jordan, 
Morocco and South Africa, are poised to take market share 
from Senegal. 
 
¶6.  In the meantime, ICS's travails continue.  Senelec has 
threatened to cut off the power, and this week, Transrail, 
manager of the Dakar-Bamako railroad, warned it would 
prohibit ICS use of its line unless ICS makes good on USD 
 
DAKAR 00000558  002 OF 002 
 
 
three million in arrears.  ICS has emerged as a serious 
threat to the continued viability of Citibank's local 
branch, which now has negative capital after taking a 
write off on USD twenty million in bad ICS loans. 
 
COMMENT 
------- 
¶7.  The Embassy continues to urge the GOS to work with 
local banks toward a formula that will share the pain and 
permit restructuring of ICS's arrears, as well as capital 
reinvestment in the company, enabling ICS to at least 
maintain present levels of production.  Reportedly, the 
Minister of Energy and Mines plans to issue a 
comprehensive restructuring proposal in May.  With 
elections in 2007, much is at stake for the Wade 
Presidency since ICS accounts for 2,500 high-paying jobs 
and has been Senegal's leading exporter.  END COMMENT. 
 
JACKSON