The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known businessman yesterday urged the National Development Plan’s (NDP) architects to “dig a little deeper” into investors’ aversion to equity investments, arguing that this was undermining the Bahamas’ sustainable development.

Sir Franklyn Wilson told Tribune Business that it was impossible for businesses, and the wider economy, to finance growth and expansion on debt “for ever and ever”.

He cited Cable Bahamas, the BISX-listed communications provider, as a company that had “reached its peak” in terms of debt financing through preference shares, with more than $200 million on its balance sheet at end-October 2015.

Sir Franklyn also urged the NDP Secretariat, and its planners, to investigate further the Bahamas’ relatively low level of savings, and the connection to investor unwillingness to invest in equity - as opposed to debt- instruments.

Praising the NDP architects for “synthesising so much information” into the ‘State of the Nation’ report released last week, Sir Franklyn said: “I encourage them to dig deeper.

“Because if they dig deeper they will find the problems are more complex and sophisticated than they’ve found so far. The problems are more complicated.

“I think that in terms of the economy, you have to dig a little deeper in terms of the question of what happening in the area of savings,” Sir Franklyn continued.

“The level of savings we’re at or close to, I don’t think we’re saving nearly enough money. What’s happening with savings is a major, major problem.”

The ‘State of the Nation’ report revealed that the Bahamas’ domestic savings had fallen by 50 per cent as a percentage of gross domestic product (GDP) in the decade up to 2012-2013, leaving its economy increasingly reliant on foreign direct investment (FDI) for growth.

The report found that gross domestic savings, as a percentage of GDP, had fallen from a high of around 25 per cent in 2002 to just 12.5 per cent in 2012-2013 - essentially halving in only a decade.

“Another major problem I think they’ll need to list for further inquiry is the attitude to risk in the country for people who have savings,” Sir Franklyn told Tribune Business.

“It seems to me that people who do have savings show a much stronger preference for investing in debt instruments rather than equity.

“You need equity to do really sustainable development. You can’t do sustainable development for ever and ever on debt.”

Sir Franklyn pointed to the increasing tendency of companies to raise financing in the Bahamian capital markets through debt, as opposed to equity (common shares), instruments.

Preference shares, a form of debt, have generally become the capital-raising vehicle of choice in the Bahamas, and the Arawak Homes and Sunshine Insurance chairman pointed to Cable Bahamas as a prime example.

“You cannot finance all the deals on preference shares,” he told Tribune Business. “Cable Bahamas is now finding its reached its peak. How much more preference shares can they take on their balance sheet?

“They’ll need equity at some point. They’ll need common, ordinary shares. You can’t keep financing deals on debt.

“It seems to me that during our next 25 years, the period of the plan, something has to happen with regard to changing investor attitudes to investing in equity, as opposed to debt.”

Cable Bahamas’ balance sheet at end-October 2015 contained $202.81 million worth of preference shares, a major increase from the $127.81 million the year before, and which accounted for the majority of its $319.184 million in non-current liabilities.

Sir Franklyn’s analysis also omitted that Cable Bahamas has just raised around $23 million in new equity capital from existing shareholders via a rights offering, although Tribune Business understands that more preference shares may be soon issued to finance the company’s obligations as regards the Bahamas’ second mobile licence.

Sir Franklyn, meanwhile, emphasised that his comments should not be interpreted as criticism of the ‘State of the Nation’ report or its authors.

He described its release as “a really great night for the Bahamas”, and added: “It was wonderful that there was an event taking place where leaders from all political parties were there to absorb and learn.

“That doesn’t happen too often in the history of the country. That in itself made it a really wonderful occasion.”

Sir Franklyn praised the both Christie administration for having “taken the initiative” to produce the ‘State of the Nation’ report and NDP, and the opposition parties “for letting it get to this stage without politicising it”.

He added: “People have been clamouring for this subject of planning, and talking about it for years and years.”

The ‘State of the Nation’ report pointed out that a stronger domestic savings culture among Bahamians would help to counterbalance FDI, and also offset the decline in foreign capital inflows that has been experienced in recent years.

“One avenue towards strengthening domestic growth would be the improving the culture of savings. As an import-driven economy, much of the previous years’ growth has been partially fuelled by external investment in the economy,” the ‘State of the Nation’ report said.

“Gross National Savings as a percentage of GDP has been on a downward trajectory since 2002, with foreign direct investment (FDI) largely supporting the growth of the economy during the last 10 years.

“Since 2010, however, FDI has experienced a sharp decline, limiting the increased potential of the economy. A strong growth in domestic savings would have a compensatory effect.”