Cuba: Bondholders accept rollover


Chloe Hayward
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Cuba to roll over €200 million of bonds; Economy under strain from financial downturn and hurricanes

The Cuban authorities are finalizing details with creditors to roll over two bonds with a total value of €200 million. The bonds, which were due to mature on May 3, will now be redeemed next year.

Sources in the Caribbean confirmed that bondholders had accepted an extension until May 2010. "This [the rollover] was voluntary, creditors understood the issues and were cooperative," says one source.

Emily Morris, senior research fellow at the International Institute for the Study of Cuba in London, who spoke with the central bank in mid-June, found officials to be "remarkably sanguine about the external financing situation, with the renegotiation of bond repayments regarded as a rescheduling but a long way from a default".

Friends of Cuba

One bond with a principal of €150 million had a coupon of 9%; the other was for €50 million and carried a coupon of 8.5%. "Given the rates on the bonds, which are not exactly a reflection of Cuban country risk, the holders are probably connected parties and friends of Cuba," says Stuart Culverhouse, head of research at Exotix. Reuters estimates that foreign entities hold 15% of the debt.

A combination of the international financial downturn and a series of hurricanes that hit the island in October have put a strain on Cuba’s reserves.

Even though its foreign exchange reserve figures are a secret, economists predict that, as a nickel exporter, it had managed to amass several billion dollars. But the fall in commodity prices over the first few months of 2009, together with a drop-off in tourism revenues and the costs incurred in rebuilding the worst-affected parts of the island after the hurricanes have put enormous pressure on Cuba’s accounts.

The island’s trade deficit widened by 70% in 2008 to nearly $12 billion, according to government reports. Local economists estimate that the current account fell into a deficit of $2.5 billion after a $500 million surplus was reported in 2007. The situation is looking a little brighter following a recent rise in nickel prices. Economic growth, however, is likely to be flat or marginal at best this year.