The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Public Hospitals Authority (PHA) is set to launch a $25 million bond offering into the Bahamian capital markets next month, Tribune Business can reveal.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, confirmed to this newspaper that proceeds from the offering will be used to repay the Royal Bank of Canada (RBC) construction loan, which financed the new Princess Margaret Hospital (PMH) Critical Care Block.

“We have a PHA deal coming to market in December,” Mr Anderson said.”That’ll be at the beginning of December, raising $25 million for the PHA.”

He confirmed that the bond issue proceeds would be used to refinance, and repay, the RBC loan taken out by the PHA to finance the much-needed upgrades to Princess Margaret Hospital’s (PMH) healthcare services.

“It’s part of the same bond offering we set up; just a different series,” Mr Anderson added of the upcoming issue.

“We raised money for them [the PHA] a couple of years ago, and this is just the final piece for them.”

The first PHA bond issue, placed in late 2013 by RoyalFidelity, was oversubscribed by $3.3 million - raising $48.3 million, and exceeding the $45 million target.

The issue was marred, however, because the $48.3 million proceeds were left sitting unclaimed in a CIBC FirstCaribbean International Bank (Bahamas) bank account for more than three months after the offering closed on November 15, 2013.

Investor confirmations were eventually sent out, but the PHA’s failure to take the money, and apply it to the purposes for which it was raised, resulted in the loss-making Authority incurring unanticipated interest payment costs.

With the bond proceeds sitting idle, several loans were not repaid and left active, hence the additional interest payments the PHA has incurred to service them.

Sources close to the matter said at the time that the PHA had to pay 6 per cent interest on the investor monies as they sat in escrow. This, too, created extra costs for the Government/PHA.

Mr Anderson, meanwhile, explained that the upcoming PHA issue meant no Treasury Note of Bahamas Government Stock (BGS) issues were planned for December, in a bid to ensure there was no dilution of available investor capital and liquidity.

The RoyalFidelity chief confirmed to Tribune Business that the latest $25 million Treasury Note offering, which closed on Friday, was “definitely fully subscribed” - with “just over $26 million” raised prior to deadline.

Mr Anderson said there appeared to have been greater participation from non-bank institutional investors in the latest issue, who had taken up around 40 per cent of the allocation.

“The banks made up $15 million of that,” Mr Anderson told Tribune Business. “Some of the credit unions came in, and we got more participation from them and other institutional clients.

“Not quite half, but a good stake, was not with the banks.”

Typically, the commercial banks tend to take up most of the Government’s short-term paper issues, such as Treasury Notes, and broadening market participation in the new security has been one of RoyalFidelity’s main goals.

Mr Anderson said the Treasury Note offerings were making “positive, steady progress”, with three out of the four to-date fully subscribed.

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.

Mr Anderson acknowledged that the first $150 million Treasury Note offering represented “a big ask”, and funds it thought would enter that issue came in on later ones.

“More frequent offerings and smaller amounts is the strategy,” he explained. “We’re going in for smaller amounts to give people a chance to hold on to their money.”

Pointing out that RoyalFidelity had raised $74 million in longer-term BGS bond debt for the Government last month, Mr Anderson said the Treasury Notes’ performance to-date “validates the Government’s assertion that there was an interest in short term paper in the market”.

He added that Treasury Notes would ultimately become the Government’s main short-term debt financing vehicle, and said: “It’s still the start of things.

“I don’t know what this will look like in five years’ time, but the start has been better than anticipated. I don’t think we anticipated raising as much in Treasury Notes as we have.”

Treasury Notes are intended to 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.