Bloomberg News

Belize Seeks to Avoid Default on Superbonds Through Talks

August 22, 2012

Belize Seeks to Avoid Default on Superbonds Through Talks

Prime Minister of Belize Dean Barrow said the government has maintained “consistent conversation” with the Inter-American Development Bank and International Monetary Fund, as well as the U.S. Treasury. Photographer: Yuri Cortez/AFP via Getty Images

Belize’s government aims to restructure its debt through negotiations with bondholders and will consider any proposal presented, Prime Minister Dean Barrow told reporters in Belize City today.

The country has worked in “good faith” with its creditors and is willing to discuss alternative restructuring scenarios, Barrow said, while stating that the government would only accept proposals that involved sustainable debt levels.

“Debt sustainability is the whole and entire object of this exercise,” Barrow said. “It is clear that serious good faith, face-to-face negotiations are the only root to a consensual solution.”

The Central American country skipped a $23 million coupon payment on $544 million of bonds due in 2029 on Aug. 20. Finance Secretary Joseph Waight said the same day that the government is unlikely to make the payment during a 30-day grace period and has instead offered bondholders three different restructuring options.

Facing slowing economic growth and rising expenditures after the nationalization of telecommunications and electricity companies, Barrow said the $1.4 billion economy couldn’t afford to continue payments on the debt. The coupon on the bonds climbed to 8.5 percent this year from 6 percent as part of an agreement reached with bondholders in a 2007 restructuring.

Superbond

The price on the so-called superbond rose 0.49 cents to 34.99 at 2:41p.m. New York time. The bonds were trading at about 50 cents the first week of August, before the government said it would be unable to make the coupon payment.

In response to the missed payment, Standard & Poor’s lowered Belize’s credit rating to selective default yesterday and said investors were likely to recover 30 percent to 50 percent of the face value in a restructuring.

“We really don’t want things to get to that point,” Barrow said when asked about the possibility of default. Belize can stay out of international credit markets in the case of default, though that “is not a prospect that we like to contemplate for the reason that we are certain that we can reach an agreement with the creditors,” he said.

Wedged between Mexico and Guatemala on the Caribbean coast, Belize’s tourism and services-dependent economy expanded 2 percent in 2011. Manufacturing and construction made up 21 percent of the economy, while agriculture and fishing’s contribution fell for a sixth consecutive year, to 11 percent, according to the central bank.

Restructuring Scenarios

Two of the three restructuring scenarios Barrow’s government has proposed call for a 45 percent principal reduction, a lower coupon and a maturity extension to 2042 from 2029. The third option includes the reduction of the 8.5 percent coupon rate to 2 percent with a 15-year principal grace period and a maturity date extension to 2062, the central bank said Aug. 8.

“It may appear Belize is asking for a lot but we aren’t asking for more than the circumstances require,” Barrow said. “For the benefit of Belizeans and our long-term creditors, it is time to put out this fire, once and for good.”

Barrow said the government has maintained “consistent conversation” with the Inter-American Development Bank and International Monetary Fund, as well as the U.S. Treasury. The country’s debt restructuring team heads to Washington D.C. today to approach the financial institutions about receiving additional assistance and reforming development and growth policies, Barrow said.

To contact the reporters on this story: Bill Faries in Belize City at wfaries@bloomberg.net; Adam Williams in Rio de Janeiro at awilliams111@bloomberg.net.

To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net.


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