The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will next week launch the first $100 million Bahamas Government Stock (BGS) offering of its 2015-2016 fiscal year, with the interest yields on offer “slightly lower” than the inaugural programme.

Michael Anderson, president of RoyalFidelity Merchant Bank & Trust, the Government’s arranger and investment adviser, said the medium-term bonds were already helping the Government to realise its objective of lower debt servicing costs.

The $100 million issue, which will launch next Tuesday, is offering investors interest coupons that are between 25 and 50 basis points lower than what the market received during the first BGS programme last year.

The Government is seeking to match 2014-2015’s result this fiscal year by raising another $200 million by end-June 2016, with Mr Anderson expressing optimism that sufficient investor interest and surplus capital were available.

“I hope there’s enough money floating around in the Bahamas,” he joked. “The last BGS offering we did was back in June, which was oversubscribed by about $30 million if I remember correctly.

“I’m anticipating that people will still have significant interest in participating. Much like last year, we know people will come in for longer maturities and higher yields.

“I believe there’s still money in the system. I’m hoping there’s still a lot of interest in the market for BGS offerings. This is part of an overall $200 million programme through to June,” Mr Anderson added.

“I think we saw a reasonable level of interest in the last one, so I’m hoping that will continue. All prior offerings were oversubscribed, so hopefully we will see a large investment this time, too.”

The three BGS issues released in the 2014-2015 fiscal year were all oversubscribed, and Mr Anderson expressed hope that next week’s offering would be boosted by the likes of the National Insurance Board (NIB) and commercial banks electing to ‘roll over’ some $35 million invested in two other government bond issues due to mature this month.

The RoyalFidelity chief conceded that “we still need the banks to get these deals sold” and, together with NIB, bring “the large money”, even though it had enjoyed some success in broadening investor participation.

While NIB and the banks typically dominated investment in the BGS’s predecessor debt security, Bahamas Government Registered Stock (BGRS), RoyalFidelity has managed to grow participation to pension funds, insurance companies and high net worth individuals.

The Government and RoyalFidelity are seeking to raise 50 per cent of the 2015-2016 fiscal year target for the BGS in the first issue, with two more to follow.

Mr Anderson said these would likely be released in January and June next year, subject to confirmation from the Government as to its financing needs and preferred timing.

Next week’s two-day BGS issue, which will close on Thursday, October 15, is split into three tranches.

• $30 million in three-year BGS bonds with an interest coupon of 3.5 per cent

• $35 million in five-year BGS bonds with a 3.875 per cent interest coupon

• $35 million in seven-year BGS bonds with an interest coupon of 4.25 per cent.

The BGS securities will be allotted on a ‘first come, first served basis’, and unless investors indicate otherwise, they will be placed into the nearest maturity date available should their preferred tranche already be fully subscribed.

“I think they’re [the Government] very happy with what happened last year, and how they [the BGS] were accepted by the market,” Mr Anderson told Tribune Business. “This year, the rates are slightly lower than last year.

“The Government feels comfortable that the rates are still attractive relative to what other options are in the market.

“This was part of the plan coming in; that through these BGS and Treasury Note programmes, the Government will find ways to reduce its debt.”

The Christie administration’s fiscal consolidation strategy relies, in part, on a more proactive debt management strategy and the ability to find ways to reduce debt servicing/borrowing costs - something the 2015-2016 BGS programme is aiming to achieve.

Mr Anderson said the interest coupons attached to the three tranches in next week’s offering were all lower than the rates offered last year.

He added that the BGS securities maturing in three years would carry a 3.5 per cent coupon, compared to 4 per cent last year. The five-year tranche carries a 3.875 per cent rate, compared to 4.25 per cent from a year ago; and the BGS securities with a seven-year maturity have a 4.25 per cent coupon as opposed to 4.5 per cent.

Mr Anderson, meanwhile, told Tribune Business that the listing of previous issues had “made a big difference” to the Bahamas International Securities Exchange’s (BISX) income and the wider capital markets.

Once placed, next week’s $100 million issue will also be listed on BISX, following the inaugural two offerings that are already there. The third BGS issue is currently making its way through the listing process.

These BGS issues will thus boost BISX’s market capitalisation by $300 million, while dividend payments and notices to investors will be handled by the exchange’s Bahamas Central Securities Depository (BCSD).

“This is the start of what we’ve been trying to do since 2004, when the Government approved the listing of its debt securities on the stock exchange,” Mr Anderson told Tribune Business.

“The first two BGS are listed, and the third one is in the process. This one is the fourth tranche, and there’ll be at least three in total this year.”