Government’s debt restructuring offer to foreign creditors could be rejected if it contains terms similar to those presented to domestic bondholders, according to a US-based fiscal analyst.
The suggestion is based on conversations between international creditors and Managing Director and Emerging Market Sovereign Analyst with investment firm Oppenheimer Nathalie Marshik, she told Barbados TODAY.
The foreign creditors believed they were being punished, Marshik said.
“Obviously their key concern is whether there will be a haircut and they are looking very keenly at what is happening with the local currency debt, and thinking that maybe that is what will be happening to them as well,” she said.
“So they are running a lot of scenarios as to what happens if we have X coupon cut, or if you have X coupon cut in the first couple years and then a ramp up again of interest rates. So then you can price your recovery value based on that. They are looking forward to starting negotiations as soon as possible,” she said.
On June 1, days after leading the Barbados Labour Party to a clean sweep in the May 24 general election, Prime Minister Mia Mottley announced that as part of an effort to restructure the island’s colossal debt of more than 170 per cent of Gross Domestic Product, she would immediately suspend payments due on debts owed to external commercial creditors, and enter into an International Monetary Fund (IMF) stand-by arrangement.
Two weeks ago, the Central Bank announced a debt exchange offer for local creditors, which it provided details of earlier this week. But external creditors are yet to know details of the planned restructuring of the debt owed to them by Government.
Central Bank Governor Cleviston Haynes said the US dollar bondholders were not being ignored and would get full details “in the not too distant future”.
But Marshik suggested that the external creditors were becoming impatient and were concerned that they would receive a similar remedy as local creditors, include a haircut on interest payments and longer repayment terms.
Asked if external creditors would even consider accepting a haircut, Marshik said “probably not”.
“What happens is that the problem is not so much the global bonds, the interest payments on these were fairly small. The earliest maturity was the 2021, which if you do well on an IMF programme then you can actually refinance in the market,” explained Marshik.
“The problem was, and Prime Minister Mottley was very clear about this, was the Credit Suisse loan and the maturity that was coming in June and another one in December. So the international investors may argue ‘we were not the cause of the pressures on the reserves so why are we involved?” she added.
Government has been burdened with the repayment of a US$225 million loan from Credit Suisse. Payments are due every June and December. These were suspended with days of the Mottley administration coming to power.
Marshik said she believed there was a level of fairness in what Government was doing, explaining that the Mottley administration has been emphasizing that “they were trying to make sure it was fair for all the debt creditors, not only the global bondholders but also what we have been seeing with the local currency debt”.
Pointing to a letter issued earlier this month by the committee that represents external creditors, Marshik said their key concern, however, was to get negotiations with Government started quickly.
“The Government has stopped paying interest on coupons and bonds. So the sooner you get this negotiation the sooner you get to an agreement the sooner they can start making the coupons again,” she said.
While the committee is prepared to support a stabilization plan and to defer principal payments, it said there was no justification for a cut in interest on external commercial debt. email@example.com