Carl Ross of brokerage firm Bear Stearns reports on the DR government’s
recent announcement of its intention to swap a payment stream it owes
to Union Fenosa (for the repurchase of electricity distribution
companies Edenorte and Edesur) into a reopening of the 2018 global
bonds.
Bear Stearns analysts estimate that the NPV savings of swapping the
Union Fenosa obligation into a 2018 reopening is $95 million in favor
of the government over the life of the bond. In terms of cash flow
savings, they estimate that the Dominican government will save $260
million over the next seven years (roughly 0.1%-0.2% of GDP per year).
“The intuition is that the government is replacing very high cost debt
(we estimate the implied interest rate on the Union Fenosa obligation
to be close to 15%) with much lower cost debt,” he explains. The
analysts conclude that: “We believe the swap makes sense.
It should therefore be viewed as a positive development for the credit.
We currently rate Dom Rep bonds as ‘outperform'”.