COMING RE-STRUCTURING UNCERTAINTY MAKES BELIZE BOND HOLDERS SELL IN PANIC.

CREDITORS ARE SELLING THE BELIZE BOND 2029. THE PRICE IS DROPPING. THE BELIZE BOND IS A MINOR PART OF ANY PORTFOLIO IN THE OUTSIDE WORLD, SO NOBODY NEEDS TO MESS AROUND WITH UNCERTAINTY, even if the current return in the FALL, at the current prices on the open market are 25%. LAST PRICE 34 cents on the dollar. Locals seeking to buy the Belize Bonds on the OPEN MARKET HAVE BEEN STYMIED, AS THE LUXEMBURG EXCHANGE DOES NOT SEEM TO HAVE THE INFRA-STRUCTURE TO SELL TO SMALL RETAIL BELIZE BUYERS.


The focus of concern is Belize's $547m 2029 issue. Known locally as "the superbond", the deal was the result of a 2007 debt restructuring after an ill-advised infrastructure spending spree. It accounts for half the country's public external debt, which stands at 69% of GDP.

Coupon payments on the bond started at 4.25% but have since stepped up to 6% and will rise to a hefty 8.25% later this year, while amortisation is due to start in 2019.

The latest round of uncertainty was set off at the end of January when Belize's prime minister Dean Barrow, announcing an early date for parliamentary elections of March 7, requested a mandate to, among other things, "do something about the superbond".

S&P promptly downgraded the sovereign from B- to CCC+. On Thursday this week Moody's followed suit, cutting Belize's rating one notch to Caa1 and putting it on review for further downgrade. The price of the 2029s collapsed to around 46, compared with 60 in mid-January.

What exactly Barrow plans to do about the superbond if, as seems likely, his United Democratic Party wins the elections, is far from clear.

Most analysts agree that the government will make the next coupon payment as scheduled on February 20 - and further comments from Barrow this week seemed to bear that out - but beyond that, there is no consensus.



Careless talk costs notches

Joe Kogan, head of emerging markets strategy at Scotiabank, said Barrow's remark may simply have been a case of pre-election political grandstanding that sparked an unexpected reaction from markets and rating agencies.

"My impression is that reneging on debt is not something they had really planned to do and that they weren't even thinking about dealing with the issues right now," he said. "They usually just like to mention the superbond as a
way to criticise the past administration."

He attributed the subsequent price movements to a combination of forced selling by accounts unable to hold triple-C paper and investor nerves over a relatively unknown credit. "Unlike some of the bigger markets it's hard to get good information on Belize, so when the little information that's out there suddenly turns very negative I can see how people would sell," Kogan said.

He pointed to the creditor-friendly nature of the 2007 restructuring - which involved only a 20% reduction in net present value - as an encouraging precedent for any similar action by the government, as well as Belize's heavy dependence on international and multilateral funding.

Stuart Culverhouse, chief economist at Exotix, was more pessimistic. "The low probability of a February default may have diminished this week but I do think that they've also firmed the line that a restructuring at some point is seemingly in their minds, and I can't see that that's not going to involve some reasonably significant loss to creditors," he said.

Belize's public finances are much healthier than in 2007 and enough funds are available to continue servicing the superbond. Central bank reserves stood at around $240m in November. However, the UDP's expropriations of Telemedia in 2009 and of Belize Electricity Ltd (BEL) from Canadian energy firm Fortis in July last year have raised the spectre of further high-handed government intervention.

"At the moment, uncertainty about what might happen has put a floor under prices on the superbond," said Culverhouse. "But if it looks likely that it's not going to recover, then investors might be more willing to sell because, although it's part of the EMBI index, it's only a very small constituent and why would you bother holding that when there are other things that are performing?"