The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s $200 million bond issue has been fully subscribed, one leading banker telling Tribune Business it was “sort of unusual” that his institution received its full allocation.

Following Central Bank governor, Wendy Craigg’s, confirmation that the Bahamas Government Registered Stock (BGRS) issue had been fully subscribed, Bank of the Bahamas International’s managing director said excess liquidity in the commercial banking system - standing at $978 million at end May 2012 - meant banks had subscribed for “more than they normally would”.

Paul McWeeney told Tribune Business that through acquiring the bonds, his institution and other commercial banks would generate better returns via “a safe investment” than if they left the funds as liquid cash.

And they would also be able to use their BGRS allocations towards meeting the Central Bank’s liquid asset requirements, given that government paper is seen as liquid, safe and not discounted for the purposes of asset and solvency calculations.

“We got our full allocation, which was sort of unusual, but the size of this issue was much larger than before,” Mr McWeeney explained. “Because of the excess liquidity in the system, most banks went in for more than they normally would.”

Government debt paper issues, chiefly those of the BGRS variety, are among the most subscribed-for investments in the Bahamian capital markets, the competition ensuring that few investors often receive 100 per cent of what they applied for.

Explaining the value of BGRS investments to commercial banks, and other institutional investors such as insurance companies, Mr McWeeney told Tribune Business: “It’s pretty good for us, not only from the liquid assets point of view, but when the economy is so anaemic it’s difficult to find good investments with good returns.

“When you invest in Government bonds, you get a decent return from safe investments. You can use them for the liquid asset requirements of the Central Bank, instead of cash, which earns nothing.”

Mrs Craigg had earlier confirmed to Tribune Business that the $200 million BGRS issue, one of the largest on record, had been fully subscribed and all allocations placed.

“Since the Government will be utilising it, some of it will be going back into the system,” she added.

Kenwood Kerr, chief executive of Providence Advisors, predicted in Tribune Business several weeks ago that the Government would be able - due to the high level of surplus assets in the banking system - to place the $200 million issue with “relative ease”.

Excess liquidity in the Bahamian commercial banking system at end-May 2012 was higher than the $940 million level recorded for the same month in 2011, indicating that because of the absence of good lending opportunities, there are multiple surplus assets seeking a good investment return home.

The $200 million bond issue was split into nine different tranches carrying fixed interest rates of between 4-4.35 per cent, offering returns that were relatively attractive compared to current bank deposit rates.

Maturities ranged from five years to 19 years. The first $20 million tranche, carrying the lowest 4 per cent interest coupon, is set to mature in 2017. The last slice, worth $40 million and carrying a 4.35 per cent coupon, will mature in 2031.

Tribune Business exclusively revealed on June 27 that the Government would be launching a $200 million BGRS placement this month, in a bid to raise much of the financing required to cover its projected $550 million fiscal deficit for 2012-2013.

The Government is borrowing an astonishing $669.205 million to cover its financing needs for the 2012-2013 fiscal year, with debt servicing (interest) costs now the single largest line item in the Budget.