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Limited Jamaican Exposure To Superbond

August 31, 2012

Denise Marshall-MIller.jpg

Denise Marshall-Miller, Manager, Bond Trading with VM Wealth Management Limited

Jamaican investors have limited exposure to Belize's superbond, but bondholders here are still keeping watch on how the tiny Caribbean country handles the proposed restructuring of the debt.

The US$544m Step Up Bond, which matures in 2029, accounts for half of Belize's total external debt.

"I don't know how widely held that bond is in Jamaica, I don't get the feeling that it is a lot, but we will have to wait and see what agreement they can come with to creditors," said Charles Ross, managing director of Sterling Asset Management.

"The initial terms put forward would put investors in a severe loss position, but will see how they shift from that position after negotiation," he said.

Belize missed a US$23-million interest payment that was due August 20. It has until September 19 to make the payment or formally default.

The bond pays interest at 8.5 per cent per annum, a coupon rate renegotiated between Belize and bondholders in 2007 when the Caribbean island first defaulted. The previous coupon was six per cent.

Belize is seeking the assistance of the International Monetary Fund (IMF), and will meet with bondholders in September to make a formal offer, according to central bank governor Glen Ysaguirre, who this week was confident a deal could be reached.

Ross says a decision to default will leave a bad taste in the mouth of investors.

"Regionally and internationally, investors will not look kindly on any debt offering from them for a long time," he said.

Bond trading manager at Victoria Mutual Wealth Management, Denise Marshall-Miller, also said there is a strong possibility that the bond is held locally.

"Given that Jamaica's history surrounds investing in bond - where it is just over the last three years we have seen them stepping outside of Government of Jamaica bonds - there would not be a lot of holders here. However, there would be some investors affected, although I couldn't say what percentage would be in their portfolio," said Marshall-Miller.

The interest payment would have been the country's first on the Step Up Bonds.

Belize has floated a payment plan, which involves an extension of the payment period on the superbond well beyond the 2029 maturity date. The Barrow administration has said that the bond contains a collective action clause that permits 75 per cent of bondholders to amend the terms or approve a complete exchange of the bond for a new instrument or instruments.

On Tuesday, a committee formed to represent the bondholders castigated the Belize government for floating proposals before discussions with creditors, calling the action "unnecessarily provocative" in a statement.

The coordinating committee of Belize Bondholders says its financial adviser BroadSpan Capital is evaluating information provided by the government of Belize and its fiscal outlook based on data released in June.

The group said the evaluation process has been impacted by delays in providing key information requested in June.

Mike Gerrard, managing director at BroadSpan, said the committee was presented with some information on June 20 and August 8, and was told the rest would be made available in the coming days.

"Frankly, the recent adversarial actions of the GOB are counterproductive to a rapid conclusion of negotiations," added A.J. Mediratta of Greylock Capital Management, co-chair of the committee.

"This bondholder group represents the only source of historical, long-term private-sector capital for the country and, while keeping all options on the table, it is our intention to continue to take a measured, cooperative approach," Mediratta said in the statement.

Belize's fiscal deficit is projected to double from 1.1 per cent to 2.5 per cent of GDP this fiscal year.

"I think when a country defaults it has major implication; (it's) bad, because they had provided for it in the budget and the debt and fiscal situation is not bad," asserted Ross.

"I am puzzled as to why they took that step and it doesn't look good for their international reputation," he said.


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