Bear Stearns’s analyst for the Dominican Republic, Franco Uccelli, issued an update today on prospects for the country meeting its international financial commitments. According to Uccelli, last week the Dominican government succeeded in persuading the Paris Club that making a payment on its PDI bonds, and as a result staying current on its obligations to bondholders, was the right course of action at this time. “By making the late PDI payment a few days shy of the expiration of its 15-day grace period, DomRep averted an outright default and established a ‘revealed preference’ for remaining current to bondholders,” writes Uccelli.
He says that the market responded well and bonds rose in price by 2-3.5 points over the past week, but alerts that the next payment to bondholders comes due on 27 March, this time on the country’s 2006 bonds, for close to US$24 million compared with the US$11 million payment made on the PDIs.
Uccelli cites Dominican official sources saying that discussions with the Paris Club last week focused mainly on making the late payment on the PDI bonds, not on timely payment on the ’06s. “With formal talks on Paris Club debt relief tentatively scheduled to commence on 12 April, we believe that timely payment of the ’06 coupon is improbable, despite high-ranking officials’ best intentions, as the Dominican government will likely wait until after it holds the meetings with its bilateral creditors before deciding on payment options,” he speculates. He adds that the grace period on the ’06 payment is 30 days long, which would afford the country enough time to get a better feel for what the Paris Club may expect in exchange for bilateral debt relief.
According to Uccelli, Dominican government officials are convincingly insisting they want to stay current on the country’s external obligations, giving the sense that they would rather avoid restructuring the country’s private debt and that the ability to make the coupon payment is not a binding constraint. The timing of the next coupon payment and of the upcoming Paris Club meetings, however, still suggest that payment will likely follow the 12 April meetings – not precede them, he writes.