By Paul Kilby
Aug 17 (IFR) - Belize's 2029 bond was trading at about
34.00-38.00 on Friday after falling to as low as 18-25 on
Tuesday, after the government said it was unable to meet its
August 20 coupon payment.
The move is seen as adding to the worsening backdrop for the
upcoming debt negotiations after the sovereign just last week
put out restructuring terms that many see as unacceptable.
"They are raising the stakes. We have strived to take a
measured approach in responding," AJ Mediratta, a partner at
Greylock Capital Management and chairman of the creditor
committee, told IFR. "The committee wants to be constructive; we
control a majority of the 2029 bond, and think their actions are
unnecessary and provocative."
The committee is now considering appropriate actions next
week including instructing the Trustee to accelerate the bonds,
Whether the announcement is part of the sovereign's
negotiating strategy or is the first step towards a default
remains unclear. In either case, the move creates considerable
friction between the debtor and its creditors as both parties
prepare to meet in what is likely to be a protracted
"They are saying they are unable to pay the coupon. To me,
that is different from officially saying we are not going to
pay. I think they are trying to send the same ongoing signal of
economic hardship and low external liquidity," said Carl Ross,
managing director of investments at Oppenheimer.
" does it surprise me? Yes. I would have thought they
would keep the communication lines open and make this as
amicable a restructuring as possible. If they default on this
coupon, the process moves to a different realm of animosity and
ill-will," he said.
The government said in a press release Tuesday that it
"cannot afford" the coupon that steps up to 8.5% from 6.0% on
August 20 and called for a quick restructuring of the
instrument. However, this seems unlikely in light of creditors'
reaction to the restructuring proposals set forth by the
government the week before.
Such scenarios include a 2% par bond maturing in 2062 with a
15-year grace period and no principal reduction, a discount bond
due 2042 with a coupon that steps up from 1% to 2% in 2019 and
to 4% in 2026 and has no grace period, or a 3.5% discount bond
due 2042 with a five-year grace period.
Both discount bonds would involve a 45% principal reduction.
The bonds fell from the 50s to the 30-35 area in response to the
"It appears the country isn't receiving good advice. We are
continuing to organise ourselves and expect proper discussions
to take place. We have asked for information and are waiting to
receive it," said Mediratta.
In order to maintain a balanced budget, the government needs
to have an average interest rate of about 2%, given that it is
running a primary surplus of 2% of GDP and has total debt,
including contingent liabilities, of around 100% of GDP, Ross
said earlier this year.
Indeed, it is those contingent liabilities from disputed
claims of former shareholders in nationalised telecoms and
electricity companies that are seen as the true wild card and
the reason Belize finds itself renegotiating its debt for a
second time in just five years.
The coordinating committee and its advisors have been
convening weekly to discuss the situation, but see no point in
holding negotiations with the sovereign until it makes its debt
sustainability analysis (DSA) public, said Mediratta.
"If we don't see their assumptions, we don't know if they
are being reasonable or not. And, as we have said from the
beginning, we are prepared to be reasonable but they first need
to make the case for it."
The government has said that those claims will be rolled
into any restructuring negotiation, though it is not yet clear
if the government can reach a resolution with shareholders in
the first place.
"Our fear is that this restructuring exercise, far from
being orderly and market-friendly, degenerates into a messy and
contentious one," wrote Nomura analyst Boris Segura last
Tuesday. "This would bode poorly for Belize's future market
access, assuming the authorities want to keep it."