Thursday, August 30, 2012

Case Study in Belize Sovereign Debt - The SuperBond Explained


A Study in Belize Sovereign Debt

By John D Turley

August 29, 2012
 
 

 

The face value of the Superbond  (the total sovereign debt of Belize) is $544 million USD.  This was issued by the country of Belize on international markets in 2007, and would bear interest only for 12 years, with maturity in 2029.   The coupon on the country’s so-called Superbond went to 8.5 percent this year from 6 percent, as part of the bond structuring.  The current price of Belize’s dollar bonds due in 2029, was 34.83 cents as of August 20, 2012. 

 

That gives a current bond value of approx. $189.5 million US.

 

To put matters in perspective, the government of Greece has taken $305 billion (with a “B”) of bailout loans from the European Union and IMF since May 2010.  This is in addition to the negotiated debt write-off of additional billions. 

 

In contrast, Belize has no burden of poverty.  While neighboring Guatemala has a population of 14,750,000 (2011), the population of Belize is only 356,600 (2011).  Guatemala’s population is 41x greater than that of Belize, in a land area only 4.7 times larger.  (Population density of 351 per sq. mile versus 40 per sq. mile).  Belize has the 4th lowest population density in the western hemisphere (behind Canada, Guyana, and Bolivia).

 

Belize is a net exporter of citrus, bananas, sugar cane, and other fruits and vegetables. 

Belize is a net exporter of shrimp, tilapia, cobia and other fishes.

Belize is a net exporter of petroleum…one of only 27 countries in the world, among oil-trading nations.

Belize exports 5.5 times its domestic consumption of petroleum.

 

46% of Belize is National Park and Marine Reserve, one of the highest percentages, if not the highest, anywhere in the world.  The 256-acre island of Caye Chapel in Belize, recently sold to the Sovereign Wealth Fund of Qatar (SWFoQ) for an amount at or above $42 million US.  The island will be developed as a flagship Four Seasons Resort - the first branded flagship resort in all of Belize.  The total development cost is projected to be $180-200 million US.  Equal to the total sovereign debt of Belize. 

That helps to put matters into perspective.

 

This is the same group (SWFoQ) that last year purchased Harrod’s department store in London, US for £1.5 billion ($2.376 billion US).  You read that right….Harrods department store, taking up one full city block in Knightsbridge, sold for 12.5x more than the current value of the total sovereign debt of Belize.

That helps to put matters into perspective.  (They also made a failed bid to purchase Manchester United football team for the same amount…£1.5 billion.)

 

The country of Belize has a total marketing and advertising budget of  $6 million US.  This includes the combined efforts of the Belize Tourism Board ( BTB), the Belize Tourism Industry Association (BTIA), and the  Belize Hotel Association (BHA), and other sources.  (By comparison, the Dominican Republic has an annual marketing budget of $71 million US.)

 

In January 2012, the Four Seasons luxury hotel chain unveiled a new website that cost $18 million to develop.  3x the total marketing budget of Belize…and 1/10 of the current bond value of the sovereign debt.  That helps to put matters in perspective.

Overnight visitors to Belize overall, were up 9% for the first half of 2012.  Those visitors arriving through Goldson (Belize) International Airport were up 13.8% for the first 6 months of 2012, year-over-year.  2012 tourism numbers are the highest on record,…in excess of the previous highs of 2006 and 2007.

 

Belize has hired New York-based law firm Cleary Gottlieb Steen & Hamilton LLP to advise the government on the restructuring of the bond.  Cleary Gottlieb is the same firm that was hired by Argentina in its debt structuring following the country’s default on $95 billion of bonds in 2001.

 

Sources in the administration of Prime Minister Dean Barrow, shared with me privately this week that the missed interest payment on the bond was a deliberate negotiating tactic under advisement of their counsel.

 

Belize has offered three different debt renegotiation scenarios, published by the Central bank on August 8, 2012.  Those various scenarios would result in a lowering of the current bond value from 34.83 cents to 20-22 cents.  The answer likely lies somewhere in between those amounts.  The debt restructuring in Greece earlier this year resulted in a price of 29 cents on the dollar.

 

It should be noted that Prime Minister Barrow was the most successful, and arguably best negotiator and most accomplished attorney in Belize before becoming Prime Minister.  He has hired the top law firm in the world to advise the government on the restructuring.  At the end of the day, there are very few countries in the world that realistically can sell a few of their several hundred islands, or hundreds of thousands of acres of native jungle, in exchange for wiping out the total sovereign debt.
 
 

That too, should help put matters in perspective.

Tuesday, October 18, 2011

How Do I Get Financing In Belize? Real Estate Questions Answered


Question: Artur from the U.S. asks "Can I get local bank financing in Belize?"

Answer: Can I get financing in Belize? This is probaly one of the most commonly asked questions. After all, not everyone has several hundred thousand dollars just sitting in a bank account. Most of my clients have their money tied up in some form of investment or another. So even those who can technically pay cash for their purchase in Belize want to know about financing options they can obtain locally.

The good news is, local banks here can and do offer property loans to both locals and foreigners. We usually work with 2 of the larger banks, Atlantic International and British Caribbean Bank as well as the smaller Belize City based bank, Choice Bank. Our clients have been very happy with the service and attention of these three.

They all lend money for raw land, improved property, investment and vacation homes and even construction loans. The process for obtaining approval is similar to that of Canada and the U.S. But with a few significant variations.

First, there is no pre-approval process here. You submit your application for along with a signed offer to purchase a specific property. This is important to know. So if you plan on using local bank financing we write any offer to purchase with a financing contingency. The bank considers each and every loan based not just on the qualifications of the buyer but also on the property itself.

Second, the terms here are different from what you may be used to. For example, all banks require 40% down on the purchase price amount. Some require 50% but 40% is the norm. This is also very important to know up front before looking at real estate in Belize. It tells you right away how much property you can afford based on how much cash you have to work with. A good rule of thumb to use is to know that you'll need about 47% of the purchase price in cash.

Why 47%? Well, the banks require 40% down. Plus you'll have your 5% stamp duty and your 1% closing costs to cover. That adds up to 47%. So if you are looking at a property that is listed for $200,000 you'll need to have $94,000 cash on hand in order to purchase it using local bank financing.
If you are interested in seeing the loan application documents just send me an email and I'll send them to you. We can also go over the documentation required and what to expect when financing your home here in Belize.
Hope this was helpful,
Dennis Kay II
RE/MAX Island Real Estate
Email: belizeislandsrealestate@gmail.com

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