Government of Barbados proposes cuts to bondholders

Sunday, June 16, 2019

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In its latest Creditor's Update, the Government of Barbados (GoB) indicated that is was going to propose a second round of haircut proposals to bondholders.

Barbados is going to offer holders of its 7.25% Notes due 2021, 7.0% Notes due 2022, 6.625% Notes due 2035 (collectively, the “Eurobonds”), and the Credit Suisse 2018 and 2019 loans the option to exchange their existing instruments either into new Amortising Step-Up Notes due 2033 (issued at a 33.3% discount to face value), or for new 3.25% Amortising Notes due 2044 (issued at par).

The GoB led by Prime Minister Mia Mottley said it is continuing consultation with restructuring its 12 billion-dollar US dollar-denominated commercial debt under reforms being implemented under the current four-year Extended Fund Facility (EFF) with the International Monetary Fund (IMF).

The GoB has set a target of a 60% debt-to-GDP by FY2033/34 target, a key anchor for the IMF-supported programme under the EFF, with an intermediate target of 80% by FY2027/28.

Weighing the impact of the news, chief executive officer of Sterling Asset Management, Charles Ross, who had encouraged investors to exit Barbados from as far back as 2012, says that the development highlights the contrasting performance of Jamaica's economy and those of Barbados and Trinidad.

Jamaica is now being viewed as a 'turnaround story' economically, “given the overall high levels of confidence, political stability and Jamaican dollar liquidity”, he said.

Speaking ahead of Sterling's investor briefing next week, Ross said that Jamaica's economy was characterised by macroeconomic stability, falling debt-to-GDP ratios and fiscal surpluses, in marked contrast to its Caribbean neighbours, Barbados and Trinidad.

“Barbados has gone from an investment grade rated territory to one in default on its international debt; Trinidad was just having difficulty refinancing the debt of its state-owned oil company. Jamaica in contrast has raised financing at very low yields.”

He added that the economies of the two CARICOM neighbours were suffering “from a myriad of problems, among them is an overvalued exchange rate and a reluctance to let the free market do its work. Both Barbados and Trinidad are committed to a fixed exchange rate. It is possible that this has been a large contributor to the current challenges they are experiencing. A fixed exchange rate has made their exports globally uncompetitive. The flexible exchange rate regime in Jamaica is critical to our ability to facilitate export led growth”.

He viewed Jamaica's recent attempts at reducing interference in the FX market as a way of avoiding the dilemma facing Trinidad and Barbados.


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