Scotia Capital Investment report says Belize’s budget provides little clarity

A recent strategy report prepared for Institutional Investors by Fixed Income Strategists of Scotia Capital (U.S.A.) Incorporated discussed the implications of the Superbond and the budget presentation to offer to investors. In short, the title says that the Belize budget provides little clarity. The delay in releasing the budget had coincided with the government’s reassessment of its liabilities.  In this respect, creditors could be disappointed since the budget envisions full payment of bond coupons for the year while at the same time expounding on the need for a restructuring. The fiscal update issued on June twentieth addresses the government’s position with regards to its debt more directly. That report delves in significant detail into the economic and fiscal problems the country will face through 2015 stemming from global economic problems, a decline in oil production, and a deteriorating infrastructure. Nevertheless, the core of the report’s conclusions that the government needs a restructuring result not from those economic problems but rather from an approximately eighty percent expected increase in debt service (interest and amortizations) arising mostly from compensation claims related to the current administration’s nationalizations of the country’s telecommunications and electric utilities. While that report’s projection of paying compensation claims over a five-year period at the mid-point between the government’s fair value assessment and the former shareholder’s asking price could provide some comfort to those former shareholders, it is unlikely to convince bondholders. Why should those bondholders accept a lower coupon or a maturity extension so that newer creditors could be repaid in full right away? The report continues by saying, “We doubt the government has enough time to complete a voluntary restructuring prior to the August twentieth due date of the next coupon payment. Recent government statements and actions suggest the government will first pursue a voluntary restructuring before resorting to an Ecuador style default, but much uncertainty remains.”