The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading investment advisor yesterday said he could not “readily recall” the Government ever seeking $300 million in bond financing in such a short times period, as the administration launched its latest $100 million Bahamas Government Registered Stock (BGRS) issue.

But, despite the latest government paper issue, following ‘hot on the heels’ of a fully-subscribed $200 million BGRS offering, Kenwood Kerr, Providence Advisors’ chief executive, and other market analysts expressed confidence that it would again be placed relatively easily.

They attributed this to both high commercial banking liquidity, with surplus assets in the system standing at $1.032 billion at end-July 2012, and the absence of attractive alternative investments.

Mr Kerr, though, told Tribune Business he could not remember the Government ever going to market to raise this amount of BGRS bond financing, and in so short a period of time, ever before.

“I don’t readily recall two consecutive periods this close for that size,” the Providence Advisors chief executive said of the back-to-back $200 million and $100 million issues.

But, when asked about the Government’s prospects for getting this issue fully subscribed, Mr Kerr said: “I think, generally speaking, that the market has a reasonable degree of liquidity, so they should have some ease in placing it.

“The rates are, in this one, Prime and Prime-plus. The last one was not at Prime, it was less than Prime, so I think they should have some relative ease in placing this.”

The $100 million issue, which closes this Friday, has a range of maturities between 2016 and 2032, and is split into six different tranches.

The tranches vary in amount, between $10 million and $30 million, and are prices at rates between Prime (4.75 per cent) and Prime plus 0.0625 (4.8125 per cent).

Mr Kerr pointed out that the BGRS issue was relatively attractive to institutional investors, such as banks, pension funds and insurance companies, due to the absence of alternative, ‘safe’ fixed income investment instruments.

“The rate on bank deposits is lower, so the spread between these two [deposits and BGRS] are widening,” Mr Kerr explained. “You’d pick it up based on the low risk.

“There’s lots of liquidity in the system, institutional liquidity. Some high net worth individuals will come in, but certainly the pension funds will have a real need for it.”

And, given that BGRS and government debt is counted 100 per cent when it comes to solvency and capital ratio/adequacy calculations, banks and insurance companies are frequent buyers.

“That’s as close to 100 per cent as you can get,” Mr Kerr said of government paper, “so the discount is non-existent to pretty slim compared to other securities, where it is up to 30 per cent. It’s a more attractive paper to house.”

Another investment banker, speaking to Tribune Business on condition of anonymity, said that while banking system liquidity was high, the recent $200 million BGRS issue had taken much of it out.

Commercial banks and the National Insurance Board (NIB) had picked up the majority, and the banker acknowledged the interest rates for the latest $100 million issue were “better” than the previous one’s fixed returns.

“It’s a more reasonable amount, but the market’s not that deep, so $300 million is a lot to take out,” the source said.

James Smith, a former minister of state for finance and now key Ministry of Finance consultant, yesterday said there was a period during his 2002-2007 term in office when the then-government went out for around $250 million in financing early in its tenure.

Still, describing the latest heavy fund raising as “extraordinary”, Mr Smith said: “What the Government discovered, though, was that no provision was made for bills coming due from the last fiscal period.

“About $140 million of that previous $200 million had to settle money coming online or previous payables. I think it will take a little while to smooth out the cycle. The $200 million, most of that didn’t go to new capital growth.”

Agreeing that high banking system liquidity and the relatively attractive return rates meant the Government “shouldn’t have much difficulty” in placing the $100 million BGRS issue, Mr Smith acknowledged that spending had to be restrained and revenues “pumped up” while previous payables were dealt with.

He also suggested that the Budget debate had “overlooked” the fact that major projects had been initiated before funding was put in place, only for payment due dates to catch up.