You may hear the Prime Minister talk about crime...or new money from Venezuela...or income tax on oil companies...but these days, the issue that's uppermost on his list of priorities is debt restructuring. It's rarely discussed except behind closed doors in Cabinet, but tonight 7NEWS has the lowdown on the battle that's being waged over who will manage what's called re-profiling. Basically, government has to figure out how to tell its commercial creditors that it simply cannot pay $BZ1.13 billion in debt.
It's a dirty job, but someone has to do it, and government has been shopping around for investment, banking and legal firms that can manage Belize's sovereign restructuring in an orderly fashion, which basically means being nice enough to tell about 20 commercial creditors that we can't pay, and firm enough to make them believe that sometime down the road, we will pay if they just give us a break.
A tough sell, and the firm that thinks it's the most up to it is Bear Stearns, the New York investment bank that sold about 60% of Belize's debt in three bond offerings of $136 million, $125 million and $100 million, all in U.S. dollars. It's been a lucrative relationship for that firm as those three bond offerings have earned it an estimated US$40 million.
And there's still more to be made, even off restructuring, and that's why late last month, Cabinet's Public Finance Committee met with representatives of Bear Stearns. But though they've had a lucrative and long standing relationship with GOB, that plan for continued business hit a major snag. The Prime Minister's new point man on debt restructuring is Minister of National Development Mark Espat and it seems Bear Stearns did all its business in the past with the Prime Minister's former point man on all money matters, Ralph Fonseca.
Both men sit in the Public Finance Committee, but Espat won that battle when he decided against Bear Stearns, and to stay with Houlihan, Loikey, Howard and Zukin, the firm that government hired to devise a debt management strategy. Well, that didn't sit well with Bear Stearns which not only stands to lose a few million on the deal, but could also be exposed to its creditors to whom it sold Belize bonds, many of them inflated by Fonseca's growth economics puffery.
Much is at stake, and the senior managing director Ajata Mediratta and vice
president Rohit Gadkar of Bear Stearns sent the Prime Minister a scolding letter on May 24th, after the Cabinet meeting. 7NEWS has obtained a copy of that confidential letter in which Bear Stearns warns the Prime Minister that the Houilhan Lokey team just aren't up to the task. The letter says that Houlihan Lokey is merely a boutique advisory firm and doesn't have the institutional capacity to guide the restructuring process.
The letter warns that Houlihan Lokey may have been, "exaggerating their credentials" and warns that Belize has, "simply no margin for error to make mistakes at this juncture." The letter tells the Prime Minister, "we appreciate the fact that you are not well versed in these topics...(but) Belize will need someone on their side who is experienced in navigating the potentially treacherous waters ahead." It concludes, "we have as much to lose as you." Strong warnings, but since then, government has not reversed its decision, and finance decision makers seem determined to cast aside all things and past relationships tied in any way to Fonseca.
Today Minister of National Development Mark Espat would only say that government has hired Houlihan Lokey and will continue to work with them.
So just what does government stand to lose in all this? Well, it's a matter of interpretation. As Bear Stearns pointed out, they have as much to lose, after all 60% of the debt is from investors who bought from Bear Stearns, and the value of Belize's bonds, now being traded at 89 cents on the dollar, is expected to take a sharp and inelegant nose dive. But, regardless, government's position is that those who represent and work for the creditors, cannot competently represent the borrowers.
And maybe that's why government is expected to also rinse the Miami Law Firm of Hunton and Williams which had successes in the Prosser legal battles and retain the New York firm of Cleary, Gottlieb, Steen & Hamilton. That company made news when they were hired to manage the largest sovereign restructuring in history: and that was in Iraq. When they did so, they played very hard ball and they didn't make any friends in the investment community by doing so, reported for taking advantage of creditors by with-holding clauses. But government has not made a decision on all that yet, and as regards the law firm, Espat would only say that government will take the advice of the Houlihan Lokey lawyers.
It's a process that continues to unfold, and it exposes a government at war not only within but in trying to manage its own identities as it tries to abandon the profligacy of its own past and embrace the enforced austerity of the present.
