Cuba, in liquidity crunch, rolls over euro bonds

Cuba, in liquidity crunch, rolls over euro bonds
Tue Jun 9, 2009 9:56pm IST

* 200 million in euro bonds due in May rolled over

* Bond holders accepted extension to May 2010

* Issue was subscribed 15 pct by foreign banks, entities

By Marc Frank

HAVANA, June 9 (Reuters) - Cuba has rolled over 200 million euros in bond issues that were due in May, as the country's central bank asked for another year to repay foreign holders of the debt, financial sources in London and Havana said this week.

The move is yet another sign the Communist-run nation is suffering a cash crisis, as it struggles with sharp declines in revenues from tourism and key exports due to the global economic crisis.

The two-year euro-denominated bonds of 150 million euros and 50 million euros that were rolled over were issued on the London Stock Exchange on May 3, 2007, at interest rates of 9 percent and 8.5 percent respectively. They were held mostly by Cuban entities, though some foreign banks with a history of providing credit to the island also participated.

"Apparently the Cuban Central Bank asked one more year for repayment to these foreign entities," a European diplomat said. The statement was confirmed by one of the non-Cuban debt holders, who spoke on condition of anonymity.

"The issue with maturity in 2009 had been subscribed 85 percent by Cuban banks and 15 percent by foreign banks and entities," the diplomat said.

Stuart Culverhouse, chief economist at London-based brokerage firm Exotix, which trades in exotic debt such as Cuba's, said there was apparently a high participation rate in the rollover by the bondholders.

"Cuba had been talking to holders in advance to negotiate rollover and was believed to have achieved a high rate of participation before the maturity date, but the exact terms are not clear," Culverhouse said.

When Cuba issued its first global debt issue in decades -- a one-year, 400 million euro ($524 million) bond that was paid off in February 2007 -- former Central Bank President Francisco Soberon said it was evidence of the increasing confidence of international financial markets in "the honesty and seriousness of the Cuban government."

But there are increasing signs now that Cuba's finances face severe strains. Foreign businesses have had difficulty this year transferring funds abroad from their accounts in Cuba or even making significant withdrawals.

Western commercial representatives and businessmen estimate that $600 million, and perhaps more, is tied up in the banks, where employees say there simply is no money to transfer or cash for significant withdrawals.

The central bank, which named Ernesto Medina as its president following Soberon's resignation last week, has also been working to restructure some of its active debt, estimated at around $11 billion.

Cuba's chronic trade deficit increased 70 percent last year to nearly $12 billion, the government reported.

Cuba's 2008 service exports, which are not included in trade deficit, were $9.2 billion, but local economists estimate the current account measuring the inflow and outflow of foreign exchange still fell $1.5 billion to $2.5 billion into the red, after registering a $500 million surplus in 2007.

Cuba's reserves are a state secret, but were drawn on heavily last year after three hurricanes struck the Caribbean island.

The government has imposed drastic cuts on nonessential imports and energy and other state consumption this year as revenues from tourism and key exports led by nickel declined.

"The U.S. veto stops them from going to the IMF, World Bank or Inter-American Development Bank," a foreign banker said, referring to the 47-year-old U.S. trade embargo against Cuba.

"Their own model stops them from a big sell-off of assets," he added.

"They are taking drastic measures and that should improve their balance sheet, but I see no big influx of fresh cash so they will keep trying to push debt payments into the future." (Editing by Jane Sutton and Leslie Adler)

Cuba, in liquidity crunch, rolls over euro bonds | Markets | Reuters (9 June 2009)
http://in.reuters.com/article/oilRpt/idINN0936980220090609?sp=true