The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An investment bank president yesterday expressed optimism that subscribers to government debt offerings could eventually number 500-1,000, matching the number of investors who traditionally buy into equity issues.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, speaking after the first-ever Bahamas Government Stock (BGS) issue was fully subscribed, said the goal of broader capital market participation was likely to be met in time.

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.

A major objective in changing the placement method is to encourage retail investors, not just the traditional institution.

With the paper set to be listed, and traded, on the Bahamas International Securities Exchange (BISX), investors - big and small - will enjoy greater liquidity with their BGS investment, able to enter and exit the market as well.

Acknowledging that there had “not been enough time” to educate the Bahamian capital markets before the first BGS tranche was launched last week, Mr Anderson said he hoped to change this by the time the next $50 million came to market in January 2015.

“In terms of subscribers coming in, it’s still relatively small,” he told Tribune Business. “What we hope will happen is that in time it will move up to 300 to 500 subscribers, if not more.

“If you think of typical equity investments in the market, you get around upwards of 1,000 subscribers. We want more and more parties to be subscribers in these [BGS] offerings.”

Mr Anderson added: “The idea is to get up to 500-1,000 subscribers per offering, and much broader participation by the public.”

Confirming that the first $75 million offering was fully oversubscribed, the RoyalFidelity chief said the merchant bank performed “a bit of a juggling act” to ensure investors obtained the securities they subscribed for.

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 said RoyalFidelity was now sending out subscriptions and registration information to the Bahamas Central Securities Depository (BCSD, so that the latter could issue confirmations to investors - something set to happen today.

He added that he was waiting on the Government to confirm the allocations so this process could start.

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, the $75 million issue will 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.