The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Public Hospitals Authority’s (PHA) $45 million bond offering was fully subscribed within the first day, its placement agent saying the main issue now was how much of the oversubscription will be accepted.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that the PHA’s Board had full discretion over whether to accept any investment subscriptions submitted after November 4.

The $45 million placement is being allocated on a ‘first come, first served basis’, which means that investors submitting subscription requests after that amount has been taken may end up disappointed - getting less than they applied for or, possibly, nothing at all.

“I think at this stage the issue is how much more the PHA will take,” Mr Anderson told Tribune Business. “If we raise another $5-$10 million over the offer limit, I’m not sure how much more they’re willing to take.

“The last cheque we got on Monday night, the first night, took us over the limit. We were fully subscribed last Monday.

“Since Monday we’ve received further subscriptions, and are still receiving subscriptions, but it remains up to the Board of the PHA how much they’re willing to take.”

Confirming Tribune Business’s exclusive story last week that the PHA is seeking to ultimately raise $100 million via a series of bond placements, of which this $45 million is the first tranche, Mr Anderson indicated there was room for it to accept excess subscriptions if it wanted.

“There’s an expectation over time that they [the PHA} will raise $100 million through the note programme,” Mr Anderson said.

“Depending on where they are and what they want to do, they will probably take more, but that’s a discussion they’ve not had.”

Mr Anderson, speaking to Tribune Business from Miami, said RoyalFidelity received another $1 million in PHA offering subscriptions on Friday morning.

With the National Insurance Board (NIB) guaranteed to subscribe for $10 million worth of the PHA bonds, in order to pay out an existing loan of the same size, RoyalFidelity was effectively left with the task of raising $35 million from institutional and high net worth investors.

Mr Anderson estimated that between $37-$38 million had been raised from these investors come Friday, but said neither RoyalFidelity nor the PHA had plans to close the offering early before the planned Friday. November 15 cut-off.

“We won’t close it early; we’ll see what we get,” Mr Anderson told Tribune Business.

“People are trying to line up deposit maturities. I suspect people are trying to get money available next [this] week so I expect we’ll get subscriptions all the way through.”

The speed and ease with which the PHA offering was fully subscribed is likely to come as little surprise to most observers.

It has been aided by a combination of factors, including banking system liquidity (surplus assets) in excess of $1 billion; the absence of alternative investments; and the low interest environment that is producing weak returns on bank deposits.

The PHA bonds’ 6 per cent yield thus appears attractive in the current environment, with a further stimulus provided by the market’s voracious appetite for fixed income securities.

Mr Anderson, meanwhile, also took on the issue that the PHA’s financial statements showed it was “technically insolvent”.

The last audited financial statements for the PHA, produced by the Grant Thornton accounting firm for the year to end-June 2012, are ‘qualified’ due to its ‘current’ solvency deficiency.

“We draw attention to Note 22 in the financial statements, which indicates that the Authority’s current liabilities exceeded its current assets by $18.628 million,” Grant Thornton said.

While this was down from the $26.405 million that existed at end-June 2011, the accountants noted that the PHA’s accumulated deficit stood at $73.042 million on June 30, 2012.

Grant Thornton added: “These conditions, along with other matters as set forth in Note 21, indicate the existence of a material uncertainty, which may cast significant doubt about the Authority’s ability to continue as a going concern without the continued financial support of the Government of the Commonwealth of the Bahamas.”

Data contained in the private placement memorandum shows the Government injected subsidies of $183.439 million and $207.136 million into the PHA in 2011 and 2012, respectively.

While it still suffered a $10.195 million comprehensive loss in 2011, the PHA was able to turn a small $2.888 million profit the following year, albeit with a massive government subsidy.

Mr Anderson reaffirmed to investors that a portion of the Government’s almost-$200 million annual subsidy would be allocated to service the PHA bond debt.

“The real issue is that government has supported, and will continue to support, the hospital as it is an essential service to the Bahamas, and they can’t afford not to support the hospital,” he added.

“A default on the hospital would be a default by the Government. People look at these securities more like a quasi-governmental security, rather than a separate government entity.”