The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Key Christie administration officials are currently in the midst of a global roadshow to test international capital market appetite for a potential US$300 million Bahamas sovereign bond issue, Tribune Business was told yesterday.

Michael Halkitis, minister of state for finance, and Simon Wilson, the Ministry of Finance’s deputy financial secretary, are due to be in New York today for meetings with potential investors, brokers and other key market figures, having visited London and Boston over the past two days.

Tribune Business sources said the duo were “trying to get a better assessment of the market’s depth and appetite” for a Bahamian sovereign bond issue, particularly in the wake of Barbados being forced to shelve a similar $500 million capital raising within the past few weeks.

While the Bahamas’ sovereign credit rating is several notches higher than Barbados’, and its economic growth and debt ratios far better, international markets have a tendency to lump all the Caribbean countries together and treat them as one.

It is this reaction that the Government team will be seeking to avoid, but neither Mr Halkitis nor Mr Wilson returned detailed Tribune Business e-mails seeking comment before press deadline last night.

However, James Smith, one of Mr Halkitis’s recent predecessors as minister of state for finance, and now a key Ministry of Finance consultant, confirmed he had spoken to the current incumbent yesterday.

Expressing confidence that the Government would get the positive market reaction it was seeking, Mr Smith told Tribune Business: “They’ve [Messrs Halkitis and Wilson] been detailed to go and raise, as part of the capital raising programme, a US dollar bond issue.”

When asked the likely size of the proposed debt offering, Mr Smith replied: “I’ve been told about $300 million. It’s a road trip that will probably take them to London, New York and Boston.”

Tribune Business sources tipped this newspaper to the Government’s capital raising plans, and the fact it had appointed J. P. Morgan and Royal Bank of Canada (RBC) Capital Markets as its placement agents and financial advisers.

This was later confirmed via Bloomberg Business News, which said: “The Commonwealth of the Bahamas has mandated J.P. Morgan and RBC Capital Markets as joint lead managers, to arrange a series of investor meetings in the US and Europe.

“A US dollar transaction may follow, subject to market conditions.”

It gave Messrs Halkitis and Wilson’s travel itinerary as being London on December 2; Boston yesterday; New York today; and Los Angeles on Thursday and Friday.

The Government estimated in May that it would need to borrow $465.759 million in the 2013-2014 fiscal year to make ends meet, and Mr Smith said the US$300 million issue would be used to help meet this need and cover capital spending programmes.

The Government is projecting to spend $295 million on capital works in 2013-2014, and Mr Smith explained that some of these projects may have “an import content” - meaning this nation would have to draw on its existing external reserves to finance them.

Raising foreign currency via a bond issue, he added, would enable the Government to finance such projects without drawing down on the existing $685 million external reserves.

“The accretion of reserves has not been very high in the last couple of years since the great recession,” Mr Smith said.

He added that the Bahamas was likely pitching to international investors at the right time, given that Standard & Poor’s (S&P), the main Wall Street credit rating agency, elected not to further downgrade this nation’s sovereign credit rating last month.

S&P has maintained a ‘BBB’ rating on the Bahamas with a negative outlook, while fellow rating agency Moody’s has this nation at ‘Baa1’ and a negative outlook.

Mr Smith, though, said Barbados’s failure to raise $500 million via a 10-year bond issue had highlighted just why it was so important to get the Bahamas’ fiscal position back on track, noting that downgrades and high debt ratios inevitably impacted a government’s ability to raise finance, and on good terms.

“Our numbers are better than Barbados’s in any event, and I think we should be OK,” Mr Smith said of the Government’s prospects.

He conceded, though, that increasing the Bahamas’ foreign currency borrowings - especially as a proportion of the total national debt - was a risky strategy.

This was because increasing amounts of the Bahamas’ precious foreign currency reserves will be required to service a growing debt, and Mr Smith said: “You’re basically going down a very precarious path when you increase the foreign currency borrowing, but then you’re between the proverbial rock and a hard place.”

This was because the Bahamas still largely imported everything that it consumed, and Mr Smith said: “It’s the rise in the debt, and increase in the proportion of foreign currency debt, that is a very difficult pill to swallow.

“You can very quietly reschedule local debt, but foreign currency debt can be a demand loan, so we have to be very careful in the quantum of foreign currency borrowing.

“If we see an increase in foreign direct investment in the next year or two, that should stimulate things here a bit.”

John Rolle, the Ministry of Finance’s financial secretary, yesterday confirmed the Government’s international capital raising intentions, saying: “The process is in train.

“There’s nothing unusual about it. It’s just a matter of the annual financing the Government does, and we’re looking at different ways the funds are raised.”

Mr Rolle said any bond issue involved a “very intensive due diligence process with investors and underwriters”, updating them on the Bahamas’ economic situation and policy environment.