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Dec 6, 2016

The Pitch for Superbond 3.0 is Not Appealing to Bondholders

The Central Bank today issued an official Government statement inviting comment from bondholders on possible structures for amending the financial terms of those instruments in order to put the Bonds on a sustainable footing. The next payment of thirteen million Belize dollars is due in February, but as we have reported, a step-up coupon due in August will push payments to seventeen million annually, ahead of principal repayments that would begin in 2019. And that’s why Government does not appear to be particularly cheerful at the prospect, with a grim warning that parliamentary approval is needed for a rigorous fiscal agenda, which means a dreaded tax reform.  So what are the choices, which must be approved by at least three-quarters of bondholders? The more than a one-billion-dollar principal could be reduced without touching the other conditions, including coupon rates. There could be changes to how and when the principal is paid, softening the amount of money due. Finally, the payments could be dragged out beyond the principal maturity date of 2038. At this hour, it is not clear which of these could prove most acceptable to bondholders, who have not even seen one principal payment since the second restructuring in 2013. Prime Minister Dean Barrow presented the background to a select group of bondholders, who, we understand, were not exactly excited. The working document being used by the team of the Prime Minister, Economic Ambassador Mark Espat and Financial Secretary Joseph Waight features “An analysis of Belize’s Debt-servicing Capacity – Public Debt Sustainability at Risk.” Here, the G.O.B. tries to capture all that went wrong or what adversely affected Belize’s ability to meet payment to its creditors, especially the bondholders. It states that the country’s capacity to pay was inhibited by various factors, particularly the one-off payments related to the nationalization of Belize Telemedia Limited and Belize Electricity Limited plus adjustments to public sector wages. Now, the adverse fiscal consequences of weak economic conditions and the recent deterioration in public finances are evident in the ever rising volume of debt needed to meet existing and future liabilities. G.O.B. also states that the funding gap is too large for domestic credit capacity and acknowledges that the Super bond is the single largest category in Belize debt profile. Given the size of the Super bond in the overall debt and debt servicing structure, it is therefore inevitable that the Super bond is to figure prominently in solutions to Belize’s debt predicament. On Wednesday, Barrow, Espat and Waight will return to Belize and update on Government’s plans and the reception they got in New York.

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