White Oak and External Creditors: Flirting with Hobson’s Choice
The blogmaster read the following article over night while perusing the financial newsfeed.
Patriotic Barbadians that understand these matters are obviously concerned negotiations have stalled with external creditors. We have to go with communications being dropped in the public space.
Commonsense support that it is not unusual creditors will push back against having to take a haircut. Barbadians wish the White Oak negotiating team well, as a country we have a lot riding on the best outcome.
Both sides agree the country of 300,000 people needs to cut debt levels. Yet talks have soured in recent weeks over how much of the burden should be borne by creditors in the form of deep haircuts or other terms. For its part, the government said it isn’t willing to negotiate targets established when it took a bailout from the International Monetary Fund last year – extracted from the Bloomberg report
Both sides seem to agree a restructure of the debt is necessary given the high debt burden and current state of the economy. What is at dispute is the amount creditors are being asked to leave on the table. Creditors have to protect their interest and the government having opted to SD will have to make it count given the damage to country’s credit rating and how it will be perceived by lenders.
However the foreign creditors will know that they have an overlapping interest with the government of Barbados. If the economy that is precariously perched on the economic cliff continues were to tank all that will be left is Hobson’s choice.
Time to close the deal!
Barbados Clashes With Creditors in Talks to Cut Greece-Like DebtBy Ezra Fieser
Barbados’ prime minister is butting heads with creditors over how to cut one of the world’s largest sovereign debt loads, creating a sticking point in the year-long negotiations to restructure the Caribbean nation’s defaulted dollar bonds.
Talks with foreign creditors have dragged on since last June, when Prime Minister Mia Mottley said she would restructure the island’s “unsustainably high” debt burden. While both sides said they are open to continued negotiation, they appear far from consensus.
A committee of creditors, who hold 55% of outstanding dollar debt, said Wednesday that they plan to unanimously reject a government proposal to exchange defaulted bonds for new debt unless the two sides negotiate together.
“The committee strongly believes that the launch of a unilateral exchange offer by the government of Barbados without the support of the committee will be highly detrimental to the country’s economic stability,” they said in a statement.
Both sides agree the country of 300,000 people needs to cut debt levels. Yet talks have soured in recent weeks over how much of the burden should be borne by creditors in the form of deep haircuts or other terms. For its part, the government said it isn’t willing to negotiate targets established when it took a bailout from the International Monetary Fund last year.
At that time, the government estimated debt had ballooned to about 175% of gross domestic product, meaning it owed around $9 billion. That would have made it one of the world’s most-indebted countries, trailing only a handful of others, including Greece, according to IMF figures. Mottley said she “will not compromise” on the goal of bringing that ratio down to 60% by 2033.
“We leave it to creditors to decide whether this is achieved through a par deal with long tenors and low interest rates, or face value haircuts with shorter tenors and higher interest rates. But the targets must be met in full,” she said in a written response to questions.
Mottley inherited a troubled $5 billion economy when she took office last May. The island known for its white sand beaches had been struggling for years amid competition from less-pricey Caribbean tourism destinations, crumbling infrastructure, and a currency that’s pegged to the U.S. dollar. She quickly struck a $290 million deal with the IMF and restructured about $6 billion in local currency debt.
The government owes around $700 million in dollar bonds, plus bank loans and other foreign debts, according to a spreadsheet posted to a website for creditors in January. Bonds maturing in 2035 have rarely traded in recent months, according to data compiled by Bloomberg.
The creditors committee said it put forth an offer two weeks ago “based on terms that aim to support the government’s debt and reform objectives while creating restructured instruments with broad market acceptance.” The committee said it is made up of long-term investors, regional central banks, individual bondholders and financial institutions and represented by advisers Newstate Partners and Washington-based law firm Arnold & Porter Kaye Scholer LLP.
The creditors contend that their offer would have allowed the government to reach its debt target a year later than it wants, according to people familiar with the committee’s negotiations. The committee’s position is that the government’s estimates fail to take into account certain revenue variables and that it is trying force severe restructuring terms on creditors to meet its debt targets, said the people, who were not authorized to discuss the negotiations.
White Oak Advisory, which is representing the government in negotiations, said the creditors’ offer “fails to meet IMF test for debt sustainability, and by quite some margin,” according to an email statement. “It is disappointing that Barbados continues to be faced with this kind of position after almost a year of negotiations.”