The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s second-ever Treasury Note offering was some 43 per cent oversubscribed, its financial adviser yesterday suggesting it will see “a fair reduction” in domestic borrowing costs.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that last week’s issue raised $71.3 million from Bahamas-based investors despite only seeking $50 million.

Confirming that the Government had decided to accept the extra funds, Mr Anderson said the 48-hour offering had brought them to “where we expected to be” after the inaugural Treasury Note offering.

Tribune Business previously revealed how that issue, released towards the end of July 2015, raised just $100 million of the $150 million target set by RoyalFidelity and the Government.

The missed target was thought to have resulted “timing issues” that left several Bahamian commercial banks unable to break deposits and allocate money to the offering prior to its closure.

Mr Anderson confirmed that the second Treasury Note issue, launched on Thursday last week, was intended to give those institutions and other investors who had missed the first issue an opportunity to buy-in - a strategy that appears to have been successful.

“We went out for an offering of $50 million and got $71.3 million,” the RoyalFidelity president told Tribune Business.

“We were trying to pick up what we didn’t get in the first offering, and I think it was a good response. The Government has confirmed they’ll take the full amount.

“Part of what we expected in the first offering came in during the second one. It was more a timing issue for some of the banks, where they were not able to get the necessary approvals for the first offering. We’re now more or less where we expected to be.”

Treasury Notes are the Government’s new short-term debt security. They are ultimately intended to replace the Treasury Bill as the Government’s main source of liquidity/cash for short-term funding.

Mr Anderson said the latest issue was broken down into notes with 90-day and 180-day maturities, with an “almost equal split” between the two in terms of the total sum raised.

He explained that the Treasury Notes, which offer all investors the same interest coupon return and maturities, should reduce the Government’s borrowing costs.

No longer will it have to seek separate loans from individual banks, on different terms and (higher) interest rates, thus making the Treasury Notes a key part of the Government’s intention to employ more proactive debt management strategies and lower its borrowing costs.

“The average cost to the Government on this debt won’t be more than 2.25 per cent,” Mr Anderson said of the second offering, “which I would imagine is a fair reduction on whatever their costs would have been on separate loans from the banks.

“Hopefully, the Government will see that as a success in terms of starting to roll-out the same loan effectively to the same group.

“The full group that should have come into the first offering came into the second, and now we’re more or less where we expected to be. I think it’s all working according to plan. We’re pleased with where we’re at.”

Mr Anderson added that the 30-day notes that comprised part of the first Treasury Note offering had already gone through their first monthly ‘roll over’, with no investors attempting to cash out.

He disclosed that a further Treasury Note offering was due next month, although this would occur after the first Bahamas Government Stock (BGS) issue for the 2015-2016 fiscal year.

The BGS programme, launched in the previous fiscal year, features the Government’s longer-term bonds - a replacement for the former Bahamas Government Registered Stock (BGRS).

Apart from broadening investor access to government debt securities beyond government institutions, the Treasury Notes are also designed to provide the market with alternatives to bank deposits via their low-risk, higher yield characteristics.

For the Government, together with their BGS counterparts, the Notes represent a departure from the previous auction-based strategy to one where its debt its allocated using market mechanisms.