Superbond 3.0 is unsustainable, experts say

By Alexis R. Milan

The government of Belize, this week, officially announced the success of its consent solicitation with the new terms of the revised 2034 bonds on the heels of touting the restructuring as a national and political victory. Experts, however, don’t share Prime Minister Dean Barrow’s same level of optimism about the bond, raising concerns that Belize may find itself in similar problems years down the road.

On Wednesday, Belize’s Central Bank reported that 87 percent of bondholders had accepted the terms of GOB’s consent solicitation, making the new terms binding. The new terms include commitments from the government to implement a fiscal consolidation equal to 3 percent of GDP in the current fiscal year. This was reflected in austerity measures implemented by GOB in its latest budget presentation in the National Assembly on Monday, which includes measures like raising the cost of various taxes on imports, fuel and building materials.

Following this fiscal cycle, GOB is expected to grow its GDP by 2 percent for each of the next three fiscal years. Stuart Culverhouse, chief economist at Exotix Partners LLP, a London-based investment firm that has closely followed the bond’s development over the years, told the Reporter that the 2 percent primary surplus target is still below the International Monetary Fund’s (IMF) recommended growth target. Referring to Belize’s ability to boost its already low level of foreign reserves to make five US $120 million payments under the new amortization schedule starting in 2030, Culverhouse said it was “questionable”.

Still, he added, 2030 is a long time away and GOB now has time on its side. He did agree, however, that given Belize’s track record, bondholders took a leap of faith in accepting terms that some in Belize have termed “too good to be true”. In his latest report on the restructuring, Culverhouse noted: “…we doubt that a 2 percent primary surplus and, for now, limited growth prospects, will be sufficient to put the debt burden on a firmly downward trajectory.”

Sean Newman, senior portfolio manager at Invesco Ltd., a U.S. based investment management company shared similar sentiments with the Reporter on Thursday. Newman, who similarly followed Jamaica’s 2039 Eurobond, was less optimistic about the sustainability of the new terms of Belize’s 2034 bonds.

Newman noted that although GOB’s agreement to seek IMF assistance in the event it fails to meet its GDP growth target is not binding, it is a significant change in stance from the government’s previous position on IMF technical assistance. He said essentially, GOB’s agreement to the condition indicates acknowledgment that at some point it may need such assistance. Whether or not GOB would choose to adopt such recommendations is another matter.

Newman said he also struggles to see how Belize will meet its agreed 2 percent GDP growth target to begin with given the economy’s recent performance. He added that Belize’s main issue has less to do with its growth rate and more with its expenditure rate, considering the country’s wage bill, which is one of the highest of developing countries in the region. “Versus cutting expenditure, they’re seeking to raise taxes, which is a sign they’re unwilling to make any serious reforms,” Newman said of GOB’s consolidation measures.

“I don’t think the administration has any intention of keeping the current debt dynamic sustainable,” Newman further added. He described the latest terms as an attempt to merely delay the inevitable. Newman believes the next administration will be faced with making future adjustments to the terms. “This is merely a measure to put this problem in the hands of someone else,” he said.

Andrew Enriquez, former vice president and director of investment banks including Bear Stearns and J.P. Morgan in the US, shared a more optimistic view saying that the coupon structure and amortization schedule are much better now than in the previous restructuring effort. “A fourth restructuring or re-opening [of the bond] is unlikely to occur before 2023,” Enriquez said, citing the principal reinstatement clause, which essentially stipulates that GOB pay bondholders an additional US $59 million in the event of a default before the 10 year anniversary of the bond.

Enriquez, however, noted that the three outstanding arbitration enforcements against Belize in US courts are also likely to impact the sustainability of the bond’s new terms. “One of the wild-cards as it relates to sustainability is the judgment in the U.S. Federal Court stemming from a trio of arbitration awards against GOB. While Belize has no attachable assets in the US to satisfy the judgments the courts have in the past, issued money judgments and injunctions against foreign sovereigns in order to force them to comply voluntarily,” he said. He added that a US judge can issue an injunction that would bar Belize from paying certain creditors like bondholders similar to a ruling made against Argentina during that country’s own bond saga. The court can also issue sanctions that accrue thousands of dollars per day as it did in the case of Chabad vs. the Russian Federation. Culverhouse and Newman agreed the enforcements would hurt.

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