Bondholders accept rollover

Cuba: Bondholders accept rollover
by Chloe Hayward
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.

Cuba: Bondholders accept rollover /Euromoney magazine (3 July 2009)
http://www.euromoney.com/Article/2245638/CurrentIssue/72526/Cuba-Bondholders-accept-rollover.html