The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian capital markets’ “shortest-ever offering” was headed towards full $75 million subscription just before Friday’s business close, its lead arranger revealing it had “most probably exceeded” expectations.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that the first tranche of new government securities was “very close to being fully subscribed, if not oversubscribed” when contacted just before closing.

Yet he conceded that while investors may have subscribed for more than the allotted $75 million, it was unclear whether all their desires could be accommodated.

Mr Anderson disclosed that because the Government bond offering was split into four slices itself, each with a different principal maturity date, some investors might not be able to buy into the ‘slice’ they wanted as it was already fully subscribed.

He conceded that some investors might not want to be switched to a different ‘slice’/maturity, meaning it was possible they might seek the return of their money.

And Mr Anderson disclosed that the compressed 48-hour timeframe in which the $75 million offering had to be placed meant there was not enough time to promote the securities and educate the market.

The offering opened last Thursday and closed at the end of business on Friday, with the Bahamas Government Stock (BGS) due to be ‘issued’ to subscribing investors today.

Mr Anderson said RoyalFidelity would now seek to bring fellow broker/dealers and the wider capital markets “up to speed” on the new government paper securities before the next $50 million tranche is released in January 2015.

Still, the RoyalFidelity president expressed his satisfaction with the market’s response to the first issue of its type.

“I think we most probably exceeded them,” Mr Anderson told Tribune Business, when asked whether it had met his expectations. “It’s been quite a good response, and I’m reasonably pleased with it.

“We didn’t know what to expect, as it was so quick market. It’s the shortest offering, I think, that we’ve had in the market, and I’m pleasantly surprised that people were able to bring in money to do this in the time they had.”

He added: “I think we’re very close to being fully subscribed, if not slightly oversubscribed. I think we’ll be more [than $75 million] in terms of subscriptions, but it’s getting them all allocated.

“The challenge we’re going to have is that people opted for certain maturities, and it’s trying to fit them in.

“Some of them are willing to move to different maturities, others don’t want to, and for those not willing to move, I don’t know what to do.”

The $75 million issue is the first Bahamian Government bond offering that has been placed through local broker/dealers, as opposed to the Central Bank of the Bahamas, with a further $125 million set to come to market by June 2015.

The $75 million issue was comprised of $22.5 million in three-year bonds carrying a 4 per cent coupon; $22.5 million with a four-year maturity and a 4.25 per cent interest rate; $22.5 million with a 4.5 per cent rate and seven-year maturity; and $7.5 million with a 6.25 per cent coupon and 30-year maturity.

Mr Anderson had previously confirmed to Tribune Business on December 5 that the $7.5 million, 30-year chunk was already fully subscribed, indicating the difficulty investors might have in obtaining certain maturities.

“It’s a deal that was put together pretty quickly,” he told this newspaper on Friday. “There was not enough time to get it out there, and do the marketing and education to a broader range of investors prior to the launch.

“We have to do more publicity and education on it in January before the next offering. While all broker/dealers got involved and placed the securities, I don’t think there was enough discussion on the new security.

“Generally speaking, it was a bit rushed towards the end, and we have to sit down with the broker/dealers and everyone to bring them all up to speed.”

Mr Anderson, though, expressed hope that the $75 million issue would pave the way for a permanent change in how locally-denominated government securities were placed and traded.

“If we educate more people, and broaden the participation, it will help the Government by giving them access to a wider market,”he added.

“It will help the country by involving investors in relatively risk-free securities paying good returns; better rates than the banks pay.”

To complete the $200 million worth of government capital raising, a further $50 million issue will follow in January, and the final two - divided into $37.5 million each - will be placed by June 2015.

Previously, all government paper debt securities have been issued through the Central Bank, with the buyers typically large institutions such as banks, insurance companies and pension funds.

Interest coupons were always fixed prior to the sale, but the new structure will rely on market mechanisms for pricing, with investors now “bidding” at a certain rate to get their intended allocation.

And, with the Bahamas Central Securities Depository replacing the Central Bank as custodian, and the debt being actively traded on BISX, Mr Anderson said the $75 million issue would effectively be “decertified”.

The securities will now be known as Bahamas Government Stock, not Bahamas Government Registered Stock (BGRS), as investors will no longer need certificates of registration to prove their ownership. This function will now be performed electronically by BISX and the Securities Depository.

The move will also establish a “yield curve” on BISX that could be used to price corporate bond and preference share issues.