Grenada in ‘financial disarray’

Oliver Joseph - given the responsibility for Economic Planning and Development, the portfolios that are key to helping the island build the promised New Economy and dealing with the debt crisis

Oliver Joseph – given the responsibility for Economic Planning and Development, the portfolios that are key to helping the island build the promised New Economy and dealing with the debt crisis

NEW YORK – Holders of Grenada’s $193 million 2025 bond, on which the Caribbean country defaulted in March, are unlikely to secure any settlement this year despite a group controlling more than 75% of the bond by value organising a recent creditor’s committee.

That gives the group, advised by BroadSpan Capital, the power to block any proposals with which they disagree. However, that tool looks impotent since the country is in such financial disarray that no money at all may be forthcoming unless bondholders agree to drastic concessions.

Newly-elected Prime Minister Keith Mitchell outlined in his budget that debt payments would make up by far the largest part of state expenditure this year at 41%, or 465 million East Caribbean dollars (US$169m). That equates to three times the EC$154m (US$57m) overall budget deficit, equivalent to 6.9% of GDP.

Mitchell outlined that Grenada’s debts stand at EC$2.33bn (US$862m), or 108% of GDP. The outstanding bonds are only a small part of this, with the majority due to multilateral bodies, such as the Caribbean Development Bank or World Bank, or other countries via bilateral loans.

“The sheer scale of our debt overhang against the backdrop of a shrinking economy has become a binding constraint on growth,” he said.

Mitchell said this prompted his decision in March to take “immediate steps “to embark on a comprehensive and collaborative restructuring of the public debt”.

He said any restructuring “must be appropriate for the circumstances Grenada faces”.

“This will require addressing the quantum of debt itself. We anticipate that some creditors may want Grenada to ‘kick the can’ down the road by deferring payments once again. However, such an approach would not be appropriate in Grenada’s current circumstances.”

Timothy Antoine - expected to play a major role in restructuring the EC$2.3 billion national debt

Timothy Antoine – expected to play a major role in restructuring the EC$2.3 billion national debt

Grenada’s outstanding bonds were the outcome of a light restructuring in 2005, which extended the tenor of the instruments while keeping the principal whole.




It is the third Caribbean country, after Belize and Jamaica, to seek a restructuring this year.

“Grenada has been a bad spot since Hurricane Ivan hit in September 2004. At least there seems to be an acceptance that the last deal was over-optimistic in its assumptions,” said one financial adviser close to the situation. “But it will be some time before any offer is made to creditors.”

Unlike Belize, the process will be complicated by the outstanding bilateral Paris Club debts. Belize also had third-party verification provided by the IMF. Grenada does not have a programme but government sources said a mission might be requested shortly.

BroadSpan managing director Mike Gerrard said the committee realised any solution would necessarily be complicated and require negotiation with all creditors and not just bondholders.

“The Committee believes that any request for support from commercial creditors should be matched not only by support from multilateral and bilateral lenders, but also by sound policy measures on the part of the government of Grenada,” he said.

BroadSpan also asked that its fees and other expenses of the committee be paid by Grenada during the process. Grenada has appointed White Oak Advisory and law firm Cleary Gottlieb as advisers.

The 2025 bond did not move last week, showing a bid/ask price of 34/36 last week, indicating a yield of 24.3%.

 

(This story was first published in the May 11 issue of International Financing Review, a Thomson Reuters publication; www.ifre.com)

 

 

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