Suriname seeks breathing room for debt payments

Suriname seeks breathing room for debt payments

Bonds Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Funds Suriname Coronavirus

Suriname on Saturday launched an initiative asking creditors to forgo their interest payments on outstanding 2023 and 2026 sovereign bonds beyond a 30-day grace period that ends on or before November 25th.

The interest payments on $675 million worth of US dollar-denominated debt were originally due in Oct. 26. The consent solicitation seeks "short-term relief from certain of the Republic’s financial obligations in order to engage proactively and in an orderly and transparent manner in a dialogue intended to create a sustainable debt framework for the Republic," the government said in a statement.

Expiration of the consent solicitation is 5:00 pm EST on Tuesday November 24th. The proposal would give the government five months reprieve in which to get its financial house in order. 

Creditors have been in daily discussions with the government, a creditor source familiar with the situation told LatinFinance on condition of anonymity given the ongoing talks. 

"I think this runs the risk of not succeeding because there simply isn't a lot of time. There's barely enough time for sophisticated investors to agree to a consent solicitation, let alone other bondholders," the source said, adding that it risks a hard default, which for practical purposes might not really change the negotiating environment.

"There is very little to nothing being offered here by the government in the way of a consent solicitation fee," the source said, referring to the "Consent Payment" that each holder of bonds would receive for agreeing to the solicitation.

Suriname is offering $0.50 for each $1,000 of outstanding principle. In other words, bondholders would get a fee of $500 for every $1 million they hold. "It is really a token, so it makes you wonder how serious they are in getting this done."

Relief from debt payments would help the country preserve its foreign currency holdings to help it manage the economic, social, and humanitarian "fallout of the ongoing COVID-19 crisis," the government said.

Earlier this month creditors holding more than 25% of the outstanding principal of the debt formed an official Holders' committee to represent their interests while also hiring Newstate Partners LLP to act as their financial advisor as they negotiate terms for a potential restructuring.

LatinFinance earlier reported that members of the committee include Franklin Templeton, Eaton Fance, GMO, and Greylock Capital.

"The jury is out on whether or not creditors will be inclined to accept (the consent solicitation offer). But the bigger wildcard is timing. Suriname left it so late that I think it will be a challenge for most creditors to accept it, even if they want to," said a second creditor familiar with the discussions, who spoke on condition of anonymity given the talks are ongoing.

In October, Suriname was due to make an interest payment of approximately $25 million on the 9.25% 2026 bonds. In midday trade, the 2026 issue was unchanged at a bid price of 52.75, down from a three weeks ago, with a yield holding at 24.87%. Suriname sold $550 million worth of 2026 notes in 2016 and $125 million worth of 2023 notes just under a year ago.

In July Suriname said it succeeded in getting consent from nearly all of its bondholders to defer payment of principal of its 9.875% 2023 notes.

The 2023 notes were originally issued in December 2019 to pay for the Afobaka hydroelectric dam owned by US aluminum producer Alcoa. The same aggregate principal amount of $125 million remained outstanding for this amortizing debt with an average life of 2.25 years, at the time of the consent.

Suriname said it is in talks with the International Monetary Fund to obtain a funded lending program in hopes of stabilizing its macro-fiscal economic framework.

"The Surinamese authorities have invited the IMF staff to engage directly with the Committee during the proposed period of principal and interest deferral, the objective being to provide bondholders with a forum to share their ideas and perspectives on the design of a funded IMF-supported program for Suriname," Suriname said in its consent solicitation announcement.

"The Republic believes that this IMF-supported program will help it address the economic and health crises and satisfy its immediate short-term funding needs," it added.

Suriname has been led since mid-July by President Chan Santokhi of the center-left Progressive Reform Party, or VHP. They postponed the interest payment in October and asked creditors to consider a standstill agreement on October 30. 

Finance Minister Armand Achaibersing told bondholders late last month that the Santokhi administration had inherited a "distressed economic and financial situation" aggravated by the coronavirus pandemic and the collapse in oil prices, leaving the country with not enough foreign reserves to cover short-term debt payments.

With a 12.5% drop in GDP in 2020, a 137% debt-to-GDP ratio, a debt service standing at 46% of government revenues and an acceleration of external debt accumulation, the country's liquidity and refinancing risks are growing, Achalbersing said.

Lazard Frères is serving as Suriname's financial advisor while legal advice is being provided by White & Case LLP.