Headline — 12 November 2016 — by Adele Ramos
Belize moves to renegotiate billion-dollar super bond  for 3rd time

BELIZE CITY, Thurs. Nov. 10, 2016–A three-man team comprised of Prime Minister and Minister of Finance Dean Barrow, Financial Secretary Joseph Waight, and Economic Ambassador Mark Espat, advisor to the Government of Belize, traveled to New York this week to meet with the Government’s legal and financial advisors: Citigroup Global Markets Inc. and Cleary Gottlieb Steen & Hamilton LLP, as the Government prepares to embark on a new round of negotiations to ease payments on its billion-dollar debt arrangement, which spans 25 years.

Amandala is reliably informed that while the Government is not attempting a full restructuring of the super bond—which could be an involved and lengthy process—it wants to ask bondholders for an amendment to the terms and conditions of the existing arrangement, as it explores options for reducing Belize’s public debt expense through lower interest rates, reduced principal and/or an extension of the maturity date currently set for 2038.

The major concerns are the current economic problems with which Belize is faced: stunted economic growth, a major fall in earnings from prime exports such as oil and agricultural produce, as well as dwindling foreign reserves, required to meet external debt payments as well as pay for imports.

Belize’s 2-1 exchange rate peg to the US dollar could, in the worst-case scenario, also be threatened in the years ahead. The IMF recently warned that difficulty faced by the Government in meeting its financing needs could “…accelerate the depletion of reserves and usher in a disorderly adjustment that would jeopardize the current peg.”

Although there have been recent rumors reaching the GOB team that there had been a default on the super bond payment, the Government has indicated that it is current with payments to bondholders. The next payment is due in February 2017, three months from now. The proposed renegotiation is to try to avert any risk of future default.

Government has already asked teachers and public officers to defer the third tier of their salary increase this year, promising to pay them next year with interest, and now it plans to lobby bondholders to negotiate lower and more flexible payments on the super bond. The situation may worsen next year, when the Government is required pay the final tranche of BZ$180 million to settle the compensation awarded in foreign arbitration to the former owners of Belize Telemedia Limited (BTL.)

In a press release issued on Wednesday, November 9, the Government of Belize announced that it intends to renegotiate the current terms of the super bond due to mature in 2038 in the face of “…serious economic and financial challenges currently facing the country.”

“For a variety of reasons, Belize’s economy has significantly underperformed in comparison with the projections used at the time in setting the terms of the 2038 Bonds,” the release added.

The release cited 4 factors: (1) low growth, (2) rising fiscal deficits, (3) a deteriorating balance of payments position, and (4) declining sovereign debt indicators.

“Belize’s challenges have been exacerbated by slow global growth, US dollar strength, Hurricane Earl, a substantial decline in key commodity production and prices, and the higher than anticipated arbitration awards,” the statement said, referring to the International Monetary Fund (IMF) staff report on Belize recently published on October 27, 2016, for detailed information on Belize’s current challenges.

The Government advises that it intends to meet with individual bondholders or, more likely, a committee representing the bondholders (if the bondholders elect to form such a committee), before the end of November, to discuss measures to place the super bond on a fully sustainable footing. Belize’s debt trajectory puts the total tab at over $3 billion for this fiscal year.

Financial Secretary Joseph Waight is quoted in the press release as saying that, “Any amendments to the terms of the instruments that may be agreed with holders of the Bonds will need to be implemented before the authorities submit their 2017 fiscal year budget to the Belize Parliament.”

Belize’s next national budget is programmed to be finalized in February, when the next payment on the super bond is also due. Amid rumors of imminent hikes in consumer taxes, the Government has also signaled that it could introduce tax adjustments for the next budget year but it has promised to consult with stakeholders before any such decision is made.

On Independence Day, September 21, 2016, Prime Minister Barrow officially announced that the country has been in recession, and with dwindling foreign exchange reserves constraining the national economy, the Government of Belize is anticipating problems meeting its foreign debt payments, roughly half of which are due to bondholders with whom the Government entered into restructured arrangements for a second time back in 2013.

That was three years ago, when the Belize economy was growing at a rate of 1.3% and foreign reserves were at almost 5 times the amount of US dollars required to pay for a month’s imports. The situation today is even more dismal. At last report, the Belize economy had shrunk by 1.6% for the first half of 2016, and foreign reserves were at an estimated US$315 million, down by almost a quarter since July, with the payment of a second tranche of compensation funds to the Michael Ashcroft companies which formerly owned BTL.

Belize’s current debt problems are linked to challenges the country faced during the period 2000-2003, when the Government issued a series of smaller bonds, such as those with Bear Stearns, and procured extensive commercial foreign debt with foreign banks such as the Royal Merchant Bank of Trinidad and the International Bank of Miami. The original super bond, as we know it, was issued under the Said Musa administration back in 2003, when the country was strained with a debt burden of over 100% of its Gross Domestic Product (GDP), well beyond the 60% deemed sustainable by international benchmarks.

The Musa administration restructured the super bond 10 years ago (in 2006-2007), and the Barrow administration restructured it just 3 years ago (2012-2013). The recent report of the International Monetary Fund (IMF) on Belize warns that the country’s debt level, now at roughly 90%, runs the risk of exceeding 100% yet again. Furthermore, the medium-term projections published by the IMF suggest that by 2021, there would only be enough foreign reserves to pay for two weeks’ imports, if changes are not made. (The benchmark is 3 months’ of imports). By then, bond payments will take up more of GOB’s expenses as the amortization of the external bond is due to begin in 2019.

The IMF notes that, “Despite the 2013 external bond exchange, public sector debt in Belize remains high.”

It added that, “…while providing temporary liquidity relief, neither of the debt restructurings properly addressed long-term debt sustainability concerns. Going forward, the success of the 2012–13 debt restructuring will still depend on the country’s ability to strengthen fiscal efforts and public debt management framework.”

The IMF noted that, “…compensation payments for the nationalized Belize Telemedia Limited (BTL) and the higher debt service on the super bond will further weaken fiscal and external accounts…

“This deficit, combined with the repatriation of part of remaining payments for the nationalized BTL… and the repayment of super bond (US$ 526.5 million at end-2015, payable over 2020-38) would reduce international reserves to uncomfortable levels.”

Just last month, October, the Ashcroft group was able to get the compensation payments converted from Belize dollars to US dollars to the tune of US$67.3 million, to facilitate that repatriation from Belize, after a ruling in their favor by the Caribbean Court of Justice. Former Central Bank Governor Glenford Ysaguirre had previously warned that issuing the US funds to the former BTL owners would hurt the economy, although there have since been assertions by the new Governor, Joy Grant, that there is enough foreign exchange for the private sector to access. Just last week, the private sector reported problems accessing foreign exchange required for merchandise trade, as well as services. The Central Bank has since advised that it would take steps to rebalance the supply of foreign currency to meet private sector demand. The Government also draws from the foreign reserves to pay its foreign debt, and the impending negotiations are intended to ease the strain on the foreign reserves caused by this growing demand.

In its Debt Sustainability Analysis, annexed to its 2016 report on Belize, the IMF said that, “…in addition to fiscal adjustment, supporting policies to improve growth, deepen domestic financial market, and improve public debt management will also be essential to improve the debt outlook.”

In September, Financial Secretary Joseph Waight told the media that super bond payments are due to increase next year. Waight said that there is a step-up in the interest rate, from 5% currently to 6.76% in August 2017. He said that payments towards the super bond, which is about half our debt, will grow significantly, from $13.5 million annually to $17 million, and another $13 million in payments will have to be added semiannually.

On Independence Day, Barrow said: “If it is the last thing I do before I leave office, I will solve once and for all that problem,” speaking of the super bond, which he characterized as a “hurricane.”

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