Bloomberg News

Belize Rejecting Argentine Default Model Spurs Bond Rally

January 14, 2013

Belize’s dollar bonds are rallying the most in emerging markets after the Central American nation improved a restructuring offer that was worse than what Argentina gave creditors following its 2001 default.

The debt has returned 18.6 percent this month, the most among 55 emerging-market countries tracked by JPMorgan Chase & Co’s EMBIG index. Prices for bonds due in 2029 rose 7.84 cents last week to 49.95 cents, up from a low of 30.11 cents on Aug. 23 following the government’s decision to skip a $23 million coupon payment, its second default in six years.

Prime Minister Dean Barrow said Dec. 31 that a restructuring agreement to be announced this month would save the country formerly known as British Honduras “hundreds of millions of dollars.” The comments suggest the government may sweeten the proposal again after improving its offer to 34 cents on the dollar in November, up from the 20 cents it initially presented, according to Exotix Ltd.

“The market action implies that not only there’s a deal, it is a further improvement,” Stuart Culverhouse, chief economist at Exotix, an investment bank focusing on frontier markets, said in a phone interview from London. “I cannot tell you if the market is justified, but clearly there’s no smoke without fire.”

Better-Than-Argentina

The so-called superbond rose 0.15 cents to 50.1 cents on the dollar, yielding 21.47 percent as of 3:47 p.m. in New York, according to data compiled by Bloomberg.

The bonds have erased all the losses since Aug. 8 when the government first proposed to restructure the $544 million of securities, calling for a 45 percent reduction in principal. The proposal, valued at 20 cents on the dollar, would impose the biggest losses on creditors among 16 sovereign debt restructurings in the world since 1998, according to Bank of Nova Scotia. (BNS)

An improved restructuring proposal would provide creditors more favorable terms than those put forward by Argentina, which offered bondholders securities valued at about 30 cents on the dollar in a debt exchange in 2005 following a record $95 billion default four years earlier, according to estimates by Scotia based on data from Moody’s Investors Service. Greece’s 200- billion-euro ($267 billion) debt swap last year, the world’s biggest restructuring, valued its bonds at 29 cents based on future cash flow, Scotia said.

Argentina’s Litigation

Argentina, blocked from global credit markets for over a decade, remains immersed in legal battles around the world as holders of defaulted debt fight for compensation. Since Belize missed its coupon payment in August, Argentine creditors convinced a court in Ghana to impound a naval ship for 11 weeks and a U.S. court ruling spurred concern that South America’s second-biggest economy could default on its restructured bonds.

The threat of bondholder lawsuits also persuaded Argentine President Cristina Fernandez de Kirchner to rent a jet for $880,000 to take her to Cuba and Asia last week instead of risking seizure of her official aircraft.

“They probably looked at what’s going on in Argentina and said ‘Look, a long litigation is not in our best interests,’” said Carl Ross, a managing director of investments at brokerage Oppenheimer & Co. in Atlanta. Oppenheimer doesn’t own Belizean or Argentine debt.

Superbond Terms

According to the terms of Belize’s bonds, the government needs to win support for its proposal from 75 percent of creditors to force other bondholders into the accord. The superbond accounts for almost half of Belize’s $1.2 billion in debt.

Greylock Capital Management is leading a group of investors holding about $350 million in Belize’s bonds in negotiating with the government. The two are finalizing the deal and an official agreement is likely early next week, said AJ Mediratta, a partner at Greylock in New York, in a telephone interview.

Creditors balked last year at the government’s restructuring proposals as economic growth surged in the country of 313,000 people, which borders Mexico and Guatemala. In November the government reported gross domestic product increased 7.4 percent in the first half of the year, more than double the rate from a year earlier, as agricultural output and tourism compensated for declining oil production. The International Monetary Fund forecasts growth of 2.5 percent this year.

Negotiators continue to work out details on a final debt accord after a broader agreement was reached “in principle,” Mark Espat, the government’s chief negotiator in the debt talks, said in an e-mailed response to questions.

“The settlement we have reached with our bondholders is on terms very favorable to us,” Barrow said in a Dec. 31 speech posted on the government’s website. “For a physically and economically tiny country, for an administration and a people unfairly saddled with a monstrosity not of our making, this is an accomplishment of historic proportions.”

To contact the reporters on this story: Adam Williams in San Jose, Costa Rica at awilliams111@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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