Newsletter: Moral Money
What you need to know about the rapidly expanding world of socially responsible business, sustainable finance and more. Delivered twice a week.
Belize admitted that it couldn’t afford to repay its debt, and after relying on the rare asset of coral reefs, it has begun to move towards dealing with international bondholders.
Earlier this month, the Pandemic devastated the tourism-rich economy of the Caribbean, using cash loaned from the US-based environmental organization Nature Conservancy, the only international bond from investors. Agreed to buy back at a big discount. As part of the deal, Belize will pre-fund a $ 23.4 million donation to support a marine conservation project on the coastline with the world’s second largest barrier reef.
Some investors need to agree on the size of the repurchase discount before the transaction is completed. But if Belize gets the necessary approval for this $ 530 million bond, the country will secure its first greenish debt restructuring and show its commitment to environmental, social and governance-led investment. You can take advantage of the hunger of major fund managers.
Investors and advisors say the deal could serve as a template for future restructuring negotiations. In this negotiation, countries struggling to raise funds will use their commitments to protect the environment to strengthen the negotiations. Natural world.
“We live in a world where many institutional investors are professing ESG sensibilities,” said Lee Buchheit, a veteran sovereign debt restructuring lawyer who advises the Belgian government. “In any restructuring, when the last few pennies are reached, things are always tight. We wanted the environmental side to undermine the deal.”
The repurchase operation, which provides investors with 55 cents per dollar of debt held by investors, requires the assistance of an additional quarter of bondholders to pass.
However, a group of investors, led by GMO, Abbrdn and Greylock Capital, represents half of the bondholders and has already blessed the scheme. Carlos de Sousa, a portfolio manager at Vontobel Asset Management, a member of this group that holds about 10% of fixed income, said the proposal shows that his company is focused on ESG.
“55 isn’t the most amazing recovery value, but we like this deal,” he said, adding that investors have regained more money in their previous restructuring. “It’s certainly positive to think that we are contributing to the protection of the world’s second largest reef. It’s a little less likely to push 60.”
Cecely Hugh, Abrdn’s investment adviser, said the Marine Fund “definitely makes the offer more attractive.”
For Belize, whose debt reaches 133% of GDP, despite restructuring five borrowings in the last 15 years, the deal provides an opportunity to restore its reputation as a continuous defaulter. increase.
Marine conservation is crucial to the country’s economy, with 40% of its production coming directly or indirectly from tourism, one in ten workers employed in the fishing sector.
Verizian Prime Minister John Brisenho said the traditional debt restructuring process has forced the debtor government to spend or waste the savings it deems appropriate. Binge and yet another purge. ”
In this case, he said, “Belize’s pending offer attempts to break this cycle by directing some of its debt relief to investing in the Belize economy, which benefits Belize and the planet.” rice field.
Belize’s deal is not the first time ESG has participated in restructuring negotiations. Last year, a group of investors promoted the inclusion of ESG standards in equity debt swaps. This could lead to the payment of new bonds in the country related to its ability to meet environmental goals in line with the Paris Climate Change Agreement. Some bondholders issued by the province of Buenos Aires, Argentina, promoted ESG-friendly restructuring earlier this year.
Neither attempt paid off, but Belize’s adviser paid attention. “That feeling is exactly what we were aiming for,” Buchheit said.
Fund managers say restructuring negotiations provide a unique opportunity to raise ESG concerns with governments, which are usually less susceptible to investor pressure than businesses. Yerlan Syzdykov, Global Head of Emerging Markets in Amundi, who was involved in restructuring in both Ecuador and Buenos Aires, said: “But if you’re already in the negotiations, you can discuss development directions regarding sustainability goals.”
Not all investors participate in such schemes. For example, hedge funds are usually interested in “maximizing recovery value more than anything else,” Syzdykov said. Still, he hopes ESG will be increasingly featured in debt negotiations. “The grand idea here should help investors representing rich countries, or primarily rich countries, pay for the transition,” Syzdykov said.
In 2013, Ecuador abandoned plans to persuade rich countries to pay not to drill oil in the rainforest after former President Rafael Correa’s hatching plans raised only $ 13 million.
Debt restructuring negotiations may provide a new mechanism for achieving similar goals, Vontobel’s de Sousa argues. Suriname, another Amazon country that is becoming a major oil exporter, may want to try something similar in its current negotiations with creditors, he said.
“The Belize deal is an example of how sovereigns can monetize environmental protection,” said de Sousa.
Belize leans on coral reefs to drive bargain with bondholders Source link Belize leans on coral reefs to drive bargain with bondholders