General — 18 January 2017 — by Adele Ramos
Belize asks bondholders to take interest cut

BELIZE CITY, Fri. Jan. 13, 2017–In a statement released today, the Government of Belize proposed to holders of its billion-dollar super-bond, due to mature in 2038, two adjustments in the terms and conditions of their arrangement: one being a reduction in the interest rate from the current level of 5% down to 4%, and the other being a delay in amortization payments of 17 years, with an offer to push back the commencement date from 2019 to 2036.

The Government is now hoping for the consent of the bondholders to its proposal, in the hope that an agreement can be reached before the next $13.5 million in semi-annual payments is due on February 20.

The next payment thereafter would be due in August, but the current repayment schedule calls for an increase in the interest rate to 6.767%—a trajectory which the Government of Belize says is unsustainable given the current economic climate.

In a memorandum to a trustee of bondholders last week (specifically addressed to the Bank of New York Mellon), the Government of Belize, via Financial Secretary Joseph Waight, said that Belize is seeking the consent of bondholders to amend the terms of the 2013 agreement, which, in fact, represented the second restructuring of the debt.

“At the time of the last restructuring of these instruments in 2013, crucial assumptions regarding Belize’s future debt service capacity were used in setting the new terms of the Bonds. Belize’s actual performance over the intervening four years, however, has fallen short of these assumptions due to several unforeseeable factors which, taken together, make Belize’s public debt unserviceable on the current terms,” Waight’s memo said.

He pointed to (1) a contraction of Belize’s GDP by 1.5% and a 25% fall in exports, as well as unemployment of 12%; (2) an estimated loss of $150 million due to Hurricane Earl, which the Financial Secretary said struck Belize in August 2016 as a category 2 cyclone; and (3) arbitrary de-risking by major US banks, and the attendant discontinuation of correspondent banking relationships with their Belizean counterparts, which, he said, has sapped confidence from the country’s financial sector, thereby slowing the pace of banking reform, and placing the 2:1 BZ$/US$ peg under strain.

The memo furthermore pointed to the half-a-billion dollar arbitration award handed down against the Government of Belize in June 2016, which arose in a dispute over the nationalization of Belize Telemedia Limited amid a litigation row between the Government and the Michael Ashcroft group. There was also compensation to be paid for the nationalization of Belize Electricity Limited.

“The aggregate quantum of the compensation to the former owners of these companies will approximate 18% of GDP,” Waight said.

He added that in the face of these unusual macroeconomic, fiscal and public debt exigencies, the Government of Belize has undertaken an aggressive program of fiscal consolidation and collaboration with its social partners with a view to achieving economic recovery and fiscal and public debt sustainability.

Waight said that in this fiscal year, tax increases of 1.5% of GDP [hikes which came in the form of higher fuel taxes] have been enacted with a further 3% of GDP in adjustments planned for FY 2017/18. He did not elaborate on how the tax revenue would be increased.

“With regard to the 2038 Bonds, the Government believes that amendments to the financial terms of the Bonds are necessary and justified in order to achieve debt serviceability,” Waight urged.

In its statement issued today, the Government outlined the proposed changes.

It said that, “Belize’s 2038 Bonds currently amortize in 38 equal, semi-annual installments commencing on August 20, 2019 and ending on February 20, 2038. Belize is seeking the consent of holders of the Bonds to amend this amortization schedule with the effect that the 2038 Bonds will amortize in three equal, annual installments on February 20th of 2036, 2037 and 2038.”

It added that, “The interest rate on the 2038 Bonds is currently 5% per annum, stepping up to 6.767% per annum effective August 20, 2017. Belize is seeking the consent of holders to fix the interest rate at 4% per annum commencing February 20, 2017 through the final maturity of the 2038 Bonds.”

It said that Belize will pay to holders a consent fee of 0.25% of the face amount of the 2038 Bonds if the amendments become effective.

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