The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is hoping to next week breach the $200 million mark for funds raised via its new Treasury Note security, with advisers confident the latest $25 million offering will be fully subscribed.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, yesterday expressed optimism that full bank participation would ensure the Government achieved its latest target for raising short-term capital.

He disclosed that future Treasury Note issues were likely to occur on a bi-monthly, rather than monthly, basis, with the frequency and value determined by the administration’s financing needs.

And Mr Anderson expressed hope that other institutional investors and high net worth individuals would start to increase their participation in offerings of the new security, viewing it as a “normal part of their portfolio”.

RoyalFidelity, on the Government’s behalf, and in concert with other Bahamian broker/dealers acting as placement agents, are splitting next week’s issue into three tranches.

They are seeking to raise a total of $5 million in Treasury Notes (bonds) with a 30-day maturity; $10 million in Notes with a 90-day maturity; and a final $10 million from Treasury Notes with a 180-day maturity.

The offering, which launches next Thursday and closes on Friday, is pricing the 30-day Notes with a 1.75 per cent interest coupon; the 90-day version at 2 per cent; and the 180-day Notes at 2.5 per cent.

Aiming to please all sides, Mr Anderson told Tribune Business that the Treasury Notes and their associated interest coupons were designed to lower the Government’s borrowing costs, while also providing investors with attractive yields and returns that are greater than those currently offered on bank deposits.

“As we try and move forward with the Treasury Notes, we are going to issue them as the Government needs short-term funds,” the RoyalFidelity president explained.

“We won’t be issuing these every month, but we expect to come out every two months with offerings where the amount will vary according to the Government’s requirements.

“We anticipate somewhere in the $10-$20 million range, so that people can plan for it.”

The Government will likely next week breach the $200 million mark in terms of collective Treasury Note financing raised since the start of the 2015-2016 fiscal year on July 1.

The first issue in July finished short of its $150 million target, raising $100 million, but the two offerings subsequent to that - in August and September respectively - were 43 per cent and 187 per cent oversubscribed.

The August issue generated $71.3 million, compared to the $50 million target, while the Treasury Note offering one month later raised $21.535 million when the Government had only sought to obtain $7 million.

With the latter offering seemingly helping the Government and RoyalFidelity to gauge market sentiment, Mr Anderson expressed optimism that next week’s $25 million will be fully subscribed.

And with almost $193 million in Treasury Note funding already raised, the fourth issue should take the Government past the $200 million mark.

“This is part of the Government’s attempt to reduce its costs,” Mr Anderson told Tribune Business of the reliance on market-driven mechanisms for the issuance of its debt.

“We anticipate the banks will fully participate. It’s [Treasury Notes] mainly focused on the banks, allowing them to lay-off some of the excess liquidity they’re holding at slightly better rates than they get in the Treasury Bill market.”

He added: “We went out for $7 million last time and got $21 million, so I hope we see the public start to participate to a greater extent as we go forward, and it becomes a normal offering.

“The rates are better than bank deposits, and with these at 30,90 and 180 days, I hope some people start to use it as part of their normal portfolio and deposit process.”

Investors are able to participate in the Treasury Note programme by opening an account with a broker/dealer, if they have not done so already.

The new security will help lower the Government’s short-term borrowing costs by standardising the loan arrangements it has with Bahamas-based commercial banks.

Rather than borrow from different banks at different interest rates, the Government can now do this via Treasury Notes that all carried the same, standard interest coupon.

And that coupon is lower than the interest rates offered by Bahamas-based commercial banks individually.

While the Treasury Notes are almost 100 basis points higher than the Treasury Bills previously employed by the Government to raise short-term funding, this is more than cancelled out by the savings on bank borrowings.