Suriname on Thursday said it would postpone a debt payment due on October 26, announcing through its finance ministry that it would invoke a 30-day grace period as it seeks to restructure its external debt amid an economic downturn exacerbated by the COVID-19 pandemic.

The government, led by President Chan Santokhi of the center-left Progressive Reform Party, or VHP, announced on October 8 that it hired the investment bank Lazard Ltd. as its advisor for working through a restructuring with creditors.

An interest payment of approximately $25 million on the 9.25% 2026 bond is due on Monday. In its statement the government said it would now “engage with its external financial creditors and international partners. The government is committed to finding a constructive and concerted solution to manage the debt burden it now faces.”

The 2026 issue was quoted by data provider Refinitiv as being down 0.25 points in price to bid 54.99, with a yield at 23.67%. The 12.875% 2024 issue was just slightly above break-even on the day, with a bid price of 56.76 and a yield of 32.6%.

A group of key bondholders has had a dialogue running with the government, said one source familiar with the situation. “With the news of the bond payment moving into the grace period, this group has started to now begin the process of formally organizing and interviewing advisors. Suriname is planning to host a creditor call at the end of the month and I expect this group will issue a public statement around that time,” the source said.

Suriname’s government, which took over in the last three months, says it now faces a budget deficit “expected to approach 20% of GDP by 2020.” It is inviting “all holders of commercial obligations of the Republic” to an investor presentation on October 30 at 11 am local time.

“Government debt has risen to historic levels, yet borrowing has continued even as severe macroeconomic and financial imbalances had built up. The national debt cannot therefore be refinanced at current market prices,” the government’s statement said, adding: “The government is also actively working with the IMF and other international financial institutions to obtain financial assistance that will support an agreed program of fiscal and economic reforms and, most importantly, protect the most vulnerable Surinamese citizens.”

In July Suriname said it succeeded in getting consent from nearly all of its bondholders to defer payment of principal of its 9.875% 2023 notes.

The 2023 notes were originally issued in December 2019 to pay for the Afobaka hydroelectric dam owned by US aluminum producer Alcoa. The same aggregate principal amount of $125 million remained outstanding for this amortizing debt with an average life of 2.25 years, at the time of the consent. 

The percentage of the aggregate outstanding principal amount that was consented was 99.84%. To be valid, the proposed changes required the consent of no less than 75% of the outstanding principal. A group of bondholders, representing 83% of the outstanding principal had already agreed to accept Suriname’s late payments on July 3.

The agreement establishes a new amortization schedule whereby the notes will be repaid in seven semi-annual installments starting on December 30, 2020. If Suriname satisfies IMF conditions prior to December 30, the amortization schedule will be adjusted so that the principal of the notes will be repaid in six semi-annual installments starting on June 30, 2021.

Dési Bouterse, founder of the National Democratic Party and former president, was convicted in November 2019 and sentenced to 20 years in jail for the 1982 murders of 15 political opponents. 

Suriname’s economy collapsed during Bouterse’s time in office and the nation’s debt nearly doubled from 2015 to 2019. The Inter-American Development Bank (IDB) has forecast that the economy will contract no 5.6% this year as a result of the COVID-19 pandemic and low oil prices.

(Additional reporting by Jo Bruni)