Franco Uccelli, Dominican market analyst for Bear Stearns, writes in a Wednesday update that the Dominican government formally requested last night congressional authorization to issue US$300 million in the international capital markets. The funds, which would be raised by either reopening the 2018 bond or by floating a new bond carrying more favorable terms for the country, would be utilized to buy back an expensive-to-service US$300 million debt owed to Spanish power company Union Fenosa.
As explained by Uccelli, the decision seeks to enhance the cash flow situation and the overall financial standing of the country’s battered electricity sector by exchanging an existing obligation that pays an interest rate of 12% and is guaranteed by and serviced with the accounts receivables of domestic distribution companies Edesur and Edenorte for unsecured sovereign paper expected to pay an interest rate of around 8%. If successful, the transaction would generate significant debt service savings for the country over the next several years.