Headline — 30 November 2012
GOB rejects bondholders’ offer

A memorandum released today from the Belize Ministry of Finance and Economic Development announces that the government has rejected counterproposals made by a committee of creditors holding the majority of Belize’s US $544 million super-bond which matures in 2029, because the terms, although they could mean short-term savings, will eventually put Belize back in the same situation as the existing bond, under which it found itself unable to meet US$23 million in debt service obligations on August 20.

The Government of Belize (GoB) paid only half that sum the following month, while negotiations with creditors have been ongoing for the past five months to iron out better terms.

Government presented three restructuring scenarios on August 8, and creditors, who were very unhappy with what some analysts described not as a “haircut” but as a “scalping”, finally responded with their counter-proposals last week, November 21.

“The scenarios combine, in different measure, temporary reductions in the current coupon rate with modest extensions in average life,” today’s update said. “All of them involve a return to the current 8.5% coupon upon the expiry of the reduced coupon period.”

Disappointed with those counter-proposals, GoB responded today with a second set of proposals, in the hope that the chasm can be bridged between what creditors want and what GoB deems sustainable in the long-term.

Head of Belize’s Debt Negotiating Team Mark Espat told Amandala that whereas the proposal made by the creditor committee, representing Greylock, Zurich, and UTC of Trinidad and Tobago and others, does mean near-term savings for Belize, the arrangements would, in the longer-term, be unsustainable for the country.

Espat declined to give specifics on the numbers put forward by the credit committee, saying that the committee had provided the information on what he deems to be confidential terms and the committee had not authorized the release of the details.

“The GoB believes that the counter-proposal ignores Belize’s high overall debt levels, and that it amounts to little more than a short-term fix not dissimilar to the 2007 exercise,” said today’s Finance memo. “The GoB views the recently-submitted scenarios as unsustainable, and is disappointed that a counter-proposal of this nature has come five months after discussions with the Committee began,” it further stated.

Last week, Belize faced another upset in its debt restructuring efforts. Prime Minister Dean Barrow expressed his strong displeasure with the refusal of Inter-American Development Bank (IDB) president Luis Moreno, to allow a proposal to be put to the IDB’s board of directors to have the bank issue a partial guarantee on Belize’s restructured debt. Moreno’s position, said Barrow, was directly influenced by the position taken by the US Treasury that unless Belize enters a special arrangement with the International Monetary Fund (IMF), which would entail higher taxes and job cuts locally, the US could not support the partial guarantee.

Espat said that the IDB guarantee was not factored in to the talks with creditors, although this could have meant additional savings for Belize.

In response to the counter-offer from bondholders, the Government of Belize has revised its August 8 indicative scenarios and it is now proposing 4 revised indicative scenarios with principal reduction ranging from 0% to 45%, a grace period of 5-15 years, a maturity period of 30 to 50 years, and coupon rates ranging from 2% to 6.75%. (See table.)

Espat said that the main difference between the two sets of proposals from Belize is how the scenarios would affect the government’s cash flow. He explained that the government was able to revise its position because of improvements in gross domestic product projections — real GDP growth in 2012 and 2013 is now expected to reach 3.3% and 2.3%, respectively; increased disbursements expected from international financing arrangements as well as a new treatment of compensation to be paid to the former owners of the nationalized utility companies — Belize Telemedia Limited and Belize Electricity Limited, including the adoption of a proposal from creditors to “ring fence” dividends to help offset Government’s estimated $170 million in payments to the former shareholders.

Asked whether continuing negotiations with the bondholders means that at least for now, any threat of a lawsuit from creditors is off the table, Espat said, “Litigation is always a risk,” and that is something, he said, the government has always been mindful of. He clarified that 25% of bondholders can sue to invoke their collection rights, and government would resist that to the extent that it can.

“The only viable solution is a negotiated solution,” said Espat.

Prime Minister Barrow had said last week that they hope the debt restructuring could be concluded by early 2013.

For now, Government will seek feedback from bondholders on the revised indicative scenarios. Espat said that they will be in touch with the creditor committee as well as non-committee bondholders.

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