The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fidelity Bank (Bahamas) yesterday confirmed its recent $10 million bond offering was “fully subscribed”, as it moves to diversify funding sources away from complete reliance on deposits.

Anwer Sunderji, the BISX-listed bank’s chief executive, told Tribune Business that $7 million of the private placement proceeds were “new money”, while the remainder ‘rolled over’ an existing note (bond category).

“We were fully subscribed at $10 million,” Mr Sunderji said of the two-week bond issue, which closed last Friday.

“We’re very pleased that there’s continued demand for yield securities, and the fact we’ve had a successful placement reduces our reliance on deposits.

“It was not surprising that it was a success, because there’s a lot of liquidity in the system. I’m sure we had more demand than we had supply, but this was par for the course as there’s a lot of demand for yield securities.”

Part of the $10 million proceeds were used to pay out Fidelity Bank (Bahamas) existing Series C notes, which reached their five-year maturity point.

Tribune Business was told that most Series C note holders elected to ‘roll over’ their investment into the new $10 million Series E note class created by the latest private placement, with just a few opting to take the pay-out and exit.

“Only $3 million of the $10 million was roll over. Some $7 million was new money,” Mr Sunderji said.

“It was simply to give us more diversified sources of funds. We’re reliant on deposits, like all banks are, but have reduced the emphasis on them. Who knows what’s going to happen with domestic liquidity?

“It [the private placement] reduces our exposure to the domestic market by tapping funds and holding them for an extended period of time. It simply furnishes the bank with more liquidity, which we’ll use for normal purposes.”

In diversifying away from deposits, Mr Sunderji conceded that Fidelity Bank (Bahamas) was “kind of hedging our bets a bit” with regard to commercial banking system liquidity (surplus assets).

This is still at historical highs, standing at $1.095 billion at end-March 2013. Although weak credit demand, the absence of qualified borrowers and low levels of economic activity have contributed to this, Mr Sunderji indicated Fidelity Bank (Bahamas) had one eye on the Government’s $465 million borrowing needs for the upcoming 2013-2014 fiscal year.

There have been some concerns that the Government’s deficit financing needs might ‘crowd out’ the private sector and suck up excess liquidity, with Mr Sunderji also pointing to the uncertainty resulting from the 2013-2014 Budget’s tax increases and policy changes.

“We’ve got this uncertainty about the Business Licence fee and all kinds of stuff,” he told Tribune Business. “It’s unclear how the economy will respond to this.”

The Fidelity Bank (Bahamas) note issue, like other recent fixed income securities offerings, will also have benefited from the prevailing low interest rate environment.

The Series E issue carries a 6 per cent interest coupon for a five-year period, with the yield/return much higher than the minimal interest available to investors on bank deposits.

Michael Anderson, president RoyalFidelity Merchant Bank & Trust, which handled the placement for its sister commercial bank, told Tribune Business: “There was a strong interest in the offering, and it was well-received by the market. We placed it privately with a select investor group.”

Fidelity Bank (Bahamas) received approval several years ago to issue up to $50 million in bonds and preference shares, at times and amounts of its choosing. It has not come year to using up this capacity as yet.