Posted on Nov 19, 2021, 6:28 PM
Environmental protection can sometimes come to the aid of the most fragile states. Belize, this small Central American state known for the beauty of its seabed, but extremely dependent on tourism (40% of GDP), found itself in a dramatic situation in 2020. On the verge of failing on a $ 553 million bond loan, he began by negotiating with his creditors the postponement of the payment of interest when the debt matures in 2034. The country has already restructured its debt 5 times in 15 years.
But on November 5, Belize finally reached an agreement to buy back its debt from its creditors. With a significant discount: he paid for the securities 55% of their face value. To finance this buyout, it received support from the American NGO, The Nature Conservancy. The latter took out a new bond of 364 million dollars issued by Belize. His particuliarity ? It is a “blue bond”, dedicated to the preservation of the oceans.
This blue bond was structured by Credit Suisse and insured against political risk to the tune of $ 610 million. This guarantee, provided by the Development Finance Corporation (DFC), the US development agency, covers both principal and interest on the loan. Belize is to repay The Nature Conservancy over a 19-year period with a 6.1% return.
This agreement will not only allow Belize to repay its creditors but also to protect its seabed. The country has the second largest barrier reef in the world behind Australia and is home to no less than 77 endangered animal species.
The government has pledged to set up an endowment of $ 23.4 million intended to finance marine conservation projects as well as to convert 30% of its ocean surface into a protected area. Another four million dollars a year, for 20 years, will also be paid into a fund aimed at preserving the country’s ocean and coastline.
In total, the DFC estimates that the agreement will generate $ 180 million for the protection and management of the marine environment, the restoration of coral reefs and mangroves, as well as economic diversification, tourism and conservation. sustainable fishing.
A win-win operation
“We thought this blue bond was a great idea because it’s a win-win deal,” explains Cecely Hugh, emerging debt investment advisor to Abrdn, one of Belize’s creditors. “It is helping Belize reduce its debt at the same time as it is helping to protect the marine environment,” she continues.
“We did not hesitate to give our green light”, also explains Luc d’Hooge, head of emerging debt at Vontobel AM, another creditor from Belize. He specifies that in addition to the ecological aspect, the financial offer to buy back with a discount was already very acceptable.
An important guarantee and real commitments
“There have been other operations like this before, but the amounts were much smaller. What makes this exceptional is the amount of the transaction, ”said Claudia Calich, head of emerging debt at M & G. A similar operation had taken place in Seychelles in 2018 but only on 15 million dollars. It also notes that the operation was largely favored by the amount of the guarantee. “This is quite unusual and this guarantee considerably reduces the risk of the financing,” explains Claudia Calich.
Other emerging countries could be tempted to resort to this kind of debt restructuring against ecological commitments. All situations are different, however, recalls Cecely Hugh, at Abrdn. “For Belize, there was a very clear political motivation, because marine conservation can bring tremendous benefit to the country.
The capital structure was quite simple: 75% of bondholders had to accept a discount, and then the debt could be restructured, ”she explains. Cecely Hugh finally insists on the importance of the actors involved: “the blue bond has been placed under the supervision of The Nature Conservancy and is based on real commitments and not vague promises. “