(Bloomberg) -- Suriname skidded into default after the government ran out of time to convince bondholders to yet again push back bond payments.
Fitch Ratings downgraded the nation to RD from C and declared default on the $675 million of dollar bonds due in 2023 and 2026 after the country failed to make an already delayed debt payment on March 31. That's Suriname's third default event of the Covid era per Fitch's criteria.
Bondholders now have until next week to accept a consent solicitation that would defer the missed payment until at least May as Suriname works toward an agreement with the International Monetary Fund.
“The government of Suriname continues to negotiate with creditors for a comprehensive restructuring of its external bonds, which has been a protracted process,” Fitch analyst Kelli Bissett-Tom said in a report Thursday.
The next move will be to see whether investors accept the latest change in terms by 5 p.m. in New York on April 8. If the consent solicitation is accepted, the payments will become due on May 10. Conditionally, the payment could instead be made in July if the nation secures a staff-level IMF agreement by the end of April.
The nation's dollar debt due in 2026 is trading at about 69 cents on the U.S. dollar as its new coalition government tries to revamp the former Dutch colony's economy and make its foreign obligations more sustainable. Bondholders already granted two separate government requests in 2020 to defer payments as the nation developed a plan, which both count as default events, according to Fitch.
The IMF wrapped up a mission to the nation in February, and government authorities expect a “successful conclusion” as they work toward an agreement on the macro-fiscal framework and policy promises needed in order to get a program, the nation said in its solicitation. The possibility of oil off the coast is also offering some hope, even though Tullow Oil Plc found only “minor” shows in a recent exploration well.
“The working assumption is that Suriname's oil finds will boost the country's growth massively in five years' time, just as it happened in neighboring Guyana,” said Carlos de Sousa, an emerging-market portfolio manager at Vontobel Asset Management in Zurich. “So while Suriname's ability to pay in the short term is very limited, it may be very good in the long term.”
Suriname's bonds, while still trading well below par, have more than doubled in price since voters chose the opposition over previous President Desi Bouterse, a former coup leader with convictions for cocaine smuggling and murder. Investors demand an extra risk premium of 1,930 basis points to hold Surname's sovereign debt over U.S. Treasuries, according to Bloomberg Barclays data.
The new president, Chandrikapersad Santokhi, inherited a swathe of economic problems, including a wide current-account deficit, depleted foreign reserves and an economy dragged down by the pandemic and low oil export prices.
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