Introducing Superbond 2.0

Is the world ready for Superbond 2.0? Well it better be because the Government of Belize launched its best offer on the Central Bank Website today. It's called the "Indicative Restructuring Scenarios" and the three page document outlines three scenarios for holders of the Superbond. First, some background: We already told you that at the end of June, that same Central Bank Website had posted an "Economic Brief" basically making the case that with falling oil revenues and looming compensation, Government can't afford to continue servicing the Superbond.

Well now, a month a and a half later - these scenarios outline what the Government says it can afford - and all three scenarios represent a loss to bondholders - but major savings for taxpayers.

"Scenario A" is a 50 year bond at a flat 2% coupon rate with a 15 year grace period - the original Superbond was for 22 years at much higher, stepped-up coupon rates.

"Scenario B" proposes a principal haircut of 45% - and is a 30 year bond with varying interest rates and no grace period.

"Scenario C" - very much like B, proposes that 45% principal haircut, with a five year grace period at 3.5% interest on a 30 year bond.

Now if the only haircuts you know about are the ones you get at a barbershop - well, join the club.

The bottom line? Bondholders - in general - would lose about a quarter of what's called net present value, amounting to savings of millions of dollars for government. We say "in general" because some bondholders bought the bonds on the cheap - and their losses would be less.

But right now government is paying about 93 million dollars in interest annually, on a stepped up coupon rate of 8.5%.

Under one of the new scenarios, that interest rate would go to 3.5% on a principal figure that is 45% less - translating into huge savings for the public purse.

But, that's the proposal. Now that these scenarios have been sent out to the world - bondholders will react - and probably many of them in anger - because they don't want to lose the value of their bonds.

And that's what will make the next 12 days interesting: because Belize's next bi-annual superbond payment is due on August 20th. Will Belize make the payment? Well it's budgeted, but even so it will be a stretch for government.

We'll keep monitoring developments closely in the days to come.

Channel 7

Superbond due on August 20th

The Ministry of Finance and Economic Development has released what it calls the Indicative Restructuring Scenarios on the five hundred and fifty-seven million U.S. dollar super bond. The document is available on the Central Bank's website at www.centralbank.org.bz. A negotiating team led by Mark Espat has been meeting with multilateral partners to fine-tune macro economic projections and finding ways to offset the nineteen point five million dollars shortfall in oil revenues. They have also been talking with the former owners of Belize Telemedia and B.E.L., on compensation. B.T.L. was nationalized in 2009 and B.E.L. in 2011, and according to the document, former shareholders of B.T.L. and Fortis are willing to consider out of court settlements. In the document, the Government presents three options that it will pitch to the holders of the Superbond. The Government says each of the three options would close financing gaps in a sustainable manner. The first option extends the Superbond maturity to 2062 at two percent interest. It includes a fifteen year grace period. The second option extends the Superbond to 2042. There is no grace period, but there is a forty-five percent discount on the principal. Interest will step up gradually from one to four percent throughout the period. The final option has a five year grace period as well as a forty-five percent principal discount and three point five percent interest throughout the term, which also ends in 2042. The government has had to commit to boost revenues while putting a cap on expenditures and investments.

Some of the measures were built into the budget and have been approved such as the VAT on petroleum products and the hotel sector as well as the reform of the banking sector regulation. Others are projected to be put in place by the end of the year or in the next fiscal year to ensure that fiscal targets are realized. With all the options presented, the government is seeking to pay less and at a later stage. The next coupon payment of the Superbond is due on August twentieth for forty-six million dollars with an interest of eight point five percent. On the other hand, S & P has revised the economic outlook from stable to negative, which reflects that low growth and investment, rising crime, public sector wage pressures, and hard budget constraint will reduce ability to pay debt service. With additional constraints from declining oil production, the country remains dependent on external financing and it is expected that net Foreign Direct Investment will fall below the current account deficit in 2012 for the first time since 2005.

Channel 5