Belize Nears Default After Missing $23 Million Bond Payment

Belize neared default after the Central American country missed a payment today on about $544 million of bonds and Finance Secretary Joseph Waight said the government is unlikely to pay during a 30-day grace period.

The government can’t make today’s $23 million bond payment, Waight said in a phone interview from Belmopan City. Prime Minister Dean Barrow, who won re-election in March, said a restructuring was needed after the coupon on the country’s so-called superbond climbed to 8.5 percent this year from 6 percent as part of an accord reached with investors in 2007.

“We simply do not have the capacity to make the payment,” Waight said. “We are hoping to engage with creditors as quickly as possible.”

Barrow projected that Belize’s fiscal deficit will climb to 2.5 percent of gross domestic product this year from 1.1 percent after growth in the $1.4 billion economy slowed and the government took over the telecommunications and electricity distribution companies.

The price of Belize’s dollar bonds due in 2029 fell 0.25 cent to 34.75 cents on the dollar, according to data compiled by Bloomberg.

Grace Period

The majority of the country’s bond holders have rejected three debt renegotiation scenarios published by the central bank on Aug. 8. Those scenarios include reduction of the 8.5 percent coupon to 2 percent with a 15-year principal grace period and a maturity date extension to 2062 from 2029. Other scenarios call for a 45 percent principal reduction with incremental coupon adjustments, or a 5-year principal grace period with a 3.5 percent coupon.

“By not paying the coupon, the government is trying to force bond holders into an exchange that will get investors pennies on the dollar,” said Joe Kogan, head of emerging-market debt strategy at Scotia Capital Markets in New York. Kogan described Belize’s proposal in an Aug. 8 report as “one of the worst restructurings for bondholders in recent emerging markets history.”

Belize has hired New York-based law firm Cleary Gottlieb Steen & Hamilton LLP to advise the government on the restructuring, Waight said. Cleary Gottlieb aided Argentina in its debt restructurings following the country’s default on $95 billion of bonds in 2001.

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