restoring debt sustainability through debt restructuring presented by: zita magaña perez ministry...

Restoring Debt Sustainability through Debt Restructuring Presented by: Zita Magaña PerezMinistry of Finance and Economic DevelopmentJune 17-18 2013

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Evolution of Total External Public Sector Debt (US$MN)

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Debt Crisis Significant increase in public debt stock during

2000-2005 Use of Funds

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Debt CrisisBy mid-2006 public debt burden was

approximately US$1.1 billion, over 90% of estimated GDP

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Debt Crisis Composition of external commercial debt

RBTT –Royal Bank of Trinidad and TobagoIBOM –International Bank of Miami

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Debt CrisisRepayment terms of external commercial

debt Interest payments absorbed 30% of fiscal

revenues

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Debt CrisisWeakening foreign exchange reserve position and

successive downgrades from the international credit rating agencies

It became increasingly expensive to access international funds to meet its debt obligations

To prevent a possible default of payments and a balance of payment crisis, GoB embarked on a comprehensive restructuring of its direct external commercial debt

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1st Debt Restructuring In August 2006, debt stock was of US$1.1 bn,

90% of which was external

Belize officially announced its intention to restructure its external commercial debt, US$565 mn

Belize’s strategy included : Full and early engagement of creditors Support of the IMF, IADB, and the CDB Disseminating data and assumptions through

the Central Bank of Belize Website10

1st Debt Restructuring (Cont’d)On December 18 the Debt Exchange Offer

was launched

Temporary suspension of debt service payments until the time of exchange closed

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1st Debt Restructuring (Cont’d)Features of the new bond included:

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1st Debt Restructuring (Cont’d)Debt Exchange Offer expired on January 26,

2007 and closed on February 20, 2007

Various instruments were substituted for a single one, US Dollar Bond due 2029 “Superbond”

98.1% of the affected debt was restructured, (currently 99%) Highest recorded sovereign debt exchange Use of Collective Action Clause (CAC)

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1st Debt Restructuring (Cont’d)The new debt service profile provided cash

flow relief over an extended period of time

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1st Debt Restructuring (Cont’d) The overall debt dynamics improved

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• The restructuring provided short-term debt relief

• Belize’s medium and long-term macroeconomic outlook remained a source of concern

• GoB’s concerns included: Level of public debt remained high Projected Decline in oil revenue Exacerbated by the global financial crisis Nationalization of public utilities

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•Key Indicators for the period 2007 - 2011

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• Belize faced a negative external climate and a heavy strain on public finances

• With projected financing gaps from 2013 onwards GoB was determined to put public debt on a sustainable path

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• On March 16, 2012 a debt restructuring team was appointed

•On June 20, 2o12 GoB formally announced its intention to restructure its US 2029 Bond • On August 8 GoB published 3 indicative restructuring scenarios on the Central Bank of Belize website

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• On August 14 GoB announced it was unable to meet its second annual payment of US$ 23.2mn due August 20, 2012

• On September 20, 2012 a partial payment of US$11.6mn was made

• On October 2 GoB began debt negotiations with a Creditors Coordinating Committee

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• In November the Coordinating Committee presented preferred restructuring proposals to GoB

• On November 21 GoB rejected proposals as they only provided short-term relief

• GoB then published its second set of indicative scenarios

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• GoB then publishes second set of indicative scenarioson November 21, 2012

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• In December negotiations result in agreement on Net Present Value for the restructuring

•On February 12, 2013 GoB sought the approval of the Parliament for the financial terms of an Offer to Exchange its US Dollar Step-Up Bonds due 2029

• GoB received that approval on the same day

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•On February 13, 2013 GoB launched its Debt Exchange Offer to exchange US$547,522,200 with the following agreed terms:

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• On March 8 GoB announced the success of the Debt Exchange Offer with 86% participation

• Use of Collective Action Clause

•On March 20 Belize closed the Exchange of its US Dollar Bonds due 2029 for a new US Dollar Bond due 2038

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• The below table shows the coupon payments made under the first and second bond restructure

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• Under the new US 2038 Bond, debt relief will be:

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• When discounted on a net present value basis , the new bonds represent a reduction of more than 43% as compared to the current terms

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Reform of Public Debt ManagementGoB has committed to the following

initiatives with a view to improve the management of its public debt Formulate Medium Term Debt Management

StrategyEstablish a Debt Management CommitteeEnact a new Public Debt Management ActEnact New Securities and Capital Market ActModernize the process for Securities TradingAdopt other improvements for the management

of Public Sector Debt

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References Central Bank of Belize www.centralbank.og.bz

Houlihan Lokey Investment Banking Services Belize’s Debt Restructuring Process, February 2007

Ministry of Finance www.mof.gov.bz

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