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Home Headline The billion-dollar superbond problem: has it really been solved?

The billion-dollar superbond problem: has it really been solved?

BELIZE CITY, Wed. Mar. 8, 2017–A quick tally of interest payments made by the Government of Belize since 2002 on what is now the billion-dollar superbond, being restructured now for the third time, reveals that the figure is roughly a billion Belize dollars, with roughly $500 million paid since the year 2008 and over $800 million due in interest alone between now and when the bond matures in almost two decades.

Currently, the bonds are set to mature in 2038, with interest payments increasing from the current rate of 5% to 6.767% when the next payment is due in August 2017. Prime Minister and Minister of Finance Dean Barrow announced at a press conference held this morning at the Best Western Belize Biltmore Plaza in Belize City that the Government is close to getting the required 75% of creditors to approve new terms it proposed last Friday to slash the debt by cutting back on interest payments and delaying the repayment of principal.

The offer from the Government—which missed the February 20 coupon payment of BZ$26 million on the superbond—expires this Friday, and Finance officials seem hopeful that other bondholders will agree to the amended terms, which also proposes 5 soft bullet payments of equal size from 2030 to 2034 to repay the principal.

Today, Financial Secretary Joseph Waight told the press that the Government is unable to pay on the current terms of the 2038 bonds. However, the Government will need to find $100 million every year from 2030 to 2034 to finally get rid of this onerous debt obligation under the amended terms of the bond.

Of course, that will be the quandary for another administration to solve, but Barrow, who continues to hint on retirement from politics before the constitutional term of his administration ends in 2020, told the press that it would be possible to refinance the principal, and to do so on better terms.

With that said, it could mean that a public sector debt which became a problem 15 years ago, could continue to bedevil a future generation unless a permanent solution is found—some suggest, perhaps, an oil bonanza.

Today, Prime Minister Dean Barrow announced that the Government had successfully concluded restructuring negotiations with bondholders, and challenged statements attributed to the Opposition People’s United Party (PUP) that the superbond is a legacy of the ruling United Democratic Party (UDP). Barrow then went into the background of the debt, pointing to a Bear Stearns report saying that $200 million of loan proceeds gotten under the PUP could not be accounted for.

Barrow told the press that the greatest victory now is being able “to get rid of amortization” on the superbond, which would have commenced in 2019. With the new deal struck with the majority of creditors, amortization would be replaced with 5 “soft bullet” payments, as we mentioned earlier.

Belize issued the first superbond in 2003. During 2005/2006, when the Said Musa administration had trouble meeting major bullet payments, it turned to Taiwan for financing. Even back then the Government, faced with a US$1 billion debt burden with which it could not cope, including the superbond, became unable to meet its commitments and so the first restructuring of the bond ensued in 2006/2007. That gave only a temporary reprieve.

Back in 2009, Barrow told News 5 that interest payments would be increasing from $46 million a year to $66 million and then eventually by another $20 million, with the interest rate gradually stepping up to about 8%. However, the principal would have been repaid via a bullet payment, which, he suggested, Belize could not afford.

“I don’t have the exact amount of the bullet payment, but that is another whole story by itself. How are you going to be finding a bullet payment, which will, of course, be multiple times greater than the annual payments?” he questioned.

It was in 2012/2013 that the Barrow administration also moved to restructure the superbond, making it the second restructuring. The existing terms are the result of that restructuring.
If the Government of Belize is finally able to close a deal with creditors in the days and weeks ahead, it would result, according to Government figures, in direct interest savings to the tune of $40 million over the next two years alone. Interest savings, we are told, would amount to 27%, although the bond would mature 4 years earlier.

The Government also touts cash flow savings of $600 million over the 11-year period 2019-2030. Barrow readily concedes, though, that this is money which the Government could not afford to pay and furthermore, would have a hard time finding US dollars to pay, since, as he puts it, Belize’s foreign exchange earnings simply could not sustain that.

Still, Barrow says that he has no doubt in his mind that “this is a solution.”

There would be a value loss to creditors, but a gain to Belize tagged at US$85 million or BZ$170 million, our newspaper has been told.

We note that as of this report, the amendment to the superbond terms has not been finalized, although Financial Secretary Joseph Waight signaled that there should be some closure on this front by early next week.

Although the Government has not conceded to entering into a formal arrangement with the International Monetary Fund (IMF) as a part of the arrangement, it has agreed to a sort of IMF scrutiny with respect to meeting certain budgetary targets until the 2020/2021 fiscal year, which is when this third term of the Barrow administration is due to end.

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