The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian capital markets could see between $70-$100 million in fund-raising activity during the 2017 first quarter, an investment banker is predicting, with equity securities set to generate full-year returns of 10-15 per cent.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that the Central Bank’s interest rate cut would likely make investments in BISX-listed stocks more attractive in 2017.

With returns on bank deposits and debt securities, such as preference shares, set to drop because they are linked to the now-lower Bahamian Prime, Mr Anderson predicted that investors would be attracted to equities as they sought higher yields.

“If you take into account that fixed income securities will drop off by 0.5 percentage points, it should make equities slightly more attractive,” he told Tribune Business.

“The dividend yields are somewhere between 3.5-6 per cent on equities, based on the average prices on the [BISX] market, and that should become more attractive.

“We should see stock prices increase between 5-10 per cent next year, and dividend yields of between 3.5-6 per cent, so the overall returns on equities should be north of 10 per cent. It should be in the 10-15 per cent area in terms of equities.”

Bahamian investors, though, have traditionally been risk averse, tending to favour investments they see as more secure and stable - bank deposits and fixed income securities - as opposed to potentially higher-yielding, but more volatile, equities.

Still, Mr Anderson said the capital markets would also benefit in 2017 from the “stimulus” provided by Baha Mar’s long-awaited opening, plus the recent Central Bank interest rate cut.

The RoyalFidelity president said that, based on the announced rationale for the cut, the Central Bank believed that the anticipated increased foreign currency inflows associated with Baha Mar opening to tourists and other new projects would offset any increase in consumer spending and import demand.

The Central Bank also believes that with unemployment still relatively high, and numerous restrictions on how much Bahamians can borrow, there are plenty of safeguards against a consumer ‘credit boom’.

Together with the increased foreign currency inflows, its analysis is that external reserve levels, which support the one:one fixed exchange rate peg with the US dollar, will not be undermined by the US rate cut.

Based on Baha Mar ramping up to 5,000 full-time staff, and an average salary of $20,000, Mr Anderson said the project’s wage impact alone could be $100 million per annum by year-end 2017.

“Baha Mar will employ more people, and as it grows through the year you should start seeing more people getting hired,” he explained.

“It looks to be about a $100 million injection into the economy next year just for salaries alone. The drop in the interest rate, and hiring of people at Baha Mar, will be stimulative for the economy, and I think equity prices will benefit from the increased spending power people have.

“Banks will be able to lend more money, the overall environment will be more stimulative for growth, which will be of benefit to equities and companies doing business in the Bahamas.”

Many observers have questioned the timing of the Central Bank’s 50 basis point cut in interest rates, given that it came just two days after Standard & Poor’s (S&P) cut the Bahamas’ sovereign credit rating to ‘junk’ status’.

They see it as a panicky, knee jerk response to S&P and potential government pressure, although this was denied by Central Bank governor, John Rolle.

Others are also questioning why it took five-and-a-half years for further Central Bank action, given that there had been a constant clamour for more cuts to aid the economy, and struggling businesses and consumers, since the last cut in June 2011.

Mr Anderson, though, said the Bahamas’ loss of ‘investment grade’ status would not impact the Bahamian economy or most local companies, with the only affects felt by those who maintained US dollar facilities or were seeking foreign currency credit.

The RoyalFidelity chief, meanwhile, said he was aware of several companies who are set to tap capital markets investors in early 2017 for debt and equity financing.

He declined to identify them, but Tribune Business has already reported that Aliv, the new mobile operator, will be seeking financing. And HoldingCo, its 51.75 per cent majority shareholder, is also seeking to replace the Government with private investors in a $70 million capital raising.

Tribune Business has also learnt that the University of the Bahamas (UOB) is seeking capital to replace the financing that it was previously due to receive from the Caribbean Development Bank (CDB), under the latter’s ‘transformation project’ for the institution.

“Going back to capital raisings I’m aware of, we should see between $70-$100 million in the first three-four months of next year; between the start of the year and April,” Mr Anderson told Tribune Business.

He added that there would be a “much higher level of activity” in the capital markets in 2017 compared to this year, partly because a number of fund-raisings had been delayed or not come to fruition in 2016.

“There were promises, but no real deals came to market. There wasn’t a lot of activity,” Mr Anderson said.