Argentina-Style Default Not Belize’s Model, Prime Minister Says
Belize hired the same law firm as Argentina when deciding to push for its second bond restructuring in five years. Prime Minister Dean Barrow wants the comparisons between the countries to end there.
Barrow sought yesterday to assuage the concerns of Greylock Capital Management, TCW Group Inc., and other holders of $544 million in bonds after it missed an Aug. 20 coupon payment. His administration is open to all restructuring proposals put forward by investors as long as they lead to “sustainable” debt payments for the $1.4 billion Central American economy, he said in a national address.
The 61-year-old premier sent a team of finance officials to Washington to meet with representatives of the U.S. Treasury Department, the International Monetary Fund and Inter-American Development Bank to discuss funding options after missing the $23 million coupon payment. The government is working with New York-based law firm Cleary Gottlieb Steen & Hamilton LLC, which advised Argentina on its two debt restructurings following a 2001 default on $95 billion of bonds.
“We really don’t want things to get to that point,” Barrow said in an interview in Belize City yesterday when asked about the possibility of facing lawsuits and being blocked from international credit markets, as Argentina has been since 2001. “We determined from the start that it would never deteriorate into us proactively saying ‘take it or leave it’” to investors, he added.
The price on Belize’s so-called superbond maturing in 2029 rose 0.49 cent yesterday to 34.99 cents, according to data compiled by Bloomberg. Bank of Nova Scotia (BNS) estimates the government’s three proposed restructuring options give the securities a net present value of 20 cents, the least among 16 sovereign debt restructurings since 1998.
Wedged between Mexico and Guatemala on the Caribbean coast, Belize says it can’t afford to pay its debt after the coupon on the securities jumped to 8.5 percent from 6 percent as part of an accord reached with bondholders in 2007.
Barrow, speaking to reporters in Belize City in his first national address since the missed payment, said the restructuring scenarios the government published Aug. 8 “are intended to serve as a basis for detailed discussions” with creditors that have yet to take place. He said that his government isn’t prioritizing payments to holders of the nationalized telecommunication and electricity companies over bondholders.
“We face significant and persistent financing gaps,” Barrow said in his speech. “It may appear Belize is asking for a lot, but we aren’t asking for more than the circumstances require.”
Two of the three restructuring scenarios 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.
Argentina, South America’s second-biggest economy, offered bondholders securities valued at 30 cents on the dollar in a debt exchange in 2005 following its default, Scotiabank said, citing data from Moody’s Investors Service. A subsequent debt swap in 2010 hasn’t helped the country end lawsuits by creditors seeking full payment on the notes. Argentina hasn’t sold bonds abroad since the default.
“All sides want the same thing,” said AJ Mediratta, a partner at Greylock who is leading a group of investors holding about $300 million of Belize’s bonds, in an Aug. 20 interview from New York. “At some point the committee and Belize are going to sit at a round table and come up with a solution.”
Belize’s economy may get an unexpected boost as tourism and banana production beat the government’s estimates this year, Barrow said. Economic growth may reach 3 percent in 2012, a full percentage point more than the administration expected, he said.
The 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.
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