It can't pay its bills and the Government of Belize is about to borrow new money, at what appears to be a high cost, to meet its budgetary requirements. As we told you last night, 7NEWS has obtained a document detailing what's called a private placement proposal, basically a loan, or as it is called a "debt offering" arranged by Bear-Stearns, the New York based investment firm.
The deal is for US$126 million, but Belize would only get US$90 million, the other US$35 million going into a costly insurance package. Why so much for insurance? Well, it seems the sovereign name of Belize by itself just isn't that good anymore and to convince investors to buy into the offering, it had to be fully insured by the highly reputable Zurich Insurance Company. In this case, the "insurance wrap" tells investors that if Belize can't pay, Zurich will.
It's a precious guarantee and a very pricey one costing Belize US$27 million in a prepaid reserve and US$8 million more In what's called a prepaid premium. The lead agent which is Bear Stearns and the insurance company will get this money up front and invest it as they see fit while Belize continues to pay interest on this sum, even though we will never have access to it.
Those with some knowledge of these transactions who we spoke to
Say that's the cost of doing business when a country's creditworthiness is doubtful and the only way to get investors to take a risk is, basically, to make sure there is none, with a complete insurance package.
A look at the schedule of payments also shows that Belize will have to make massive re-payments between years 2 ½ to year 5 amounting to BZ$35 million a year, currently a full quarter of our current debt servicing bill. And that debt service bill won't go down because of this new debt, because again, the purpose as stated on the document is to meet general budgetary purposes, not to retire debt.
And how much will this new money cost? Well it's listed at 10.96% but when you add in the cost of arranging the very expensive transaction, it works out to close to 14%, expensive money by any standard. Costly money and a big loan, $252 million, an estimated 10% of this year's projected GDP.
If all goes as planned, the money should become available within the next 8 weeks. And if it doesn't, the agreement makes provisions for a break-up fee, which would cost Belize US$1 million.
