The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s new Treasury Note security will finish “pretty close” to its $250 million first-year target, with the last 2015-2016 issue oversubscribed by at least 20 per cent.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that last week’s $10 million Treasury Note offering had already raised $12 million just hours before the Friday close.

The RoyalFidelity chief, who acts as the Government’s financial adviser and placement agent on its domestic debt issues, said the latest sum would take the Treasury Note programme close to its goal in terms of total capital raised.

He added that it was also likely to have reduced the Government’s short-term debt servicing costs by “at least a couple of percentage points” compared to the interest charges associated with bank borrowings.

And, with the current fiscal year set to close in just 10 days’ time, Mr Anderson revealed that the Government would soon unveil a new debt-raising programme for 2016-2017 once all the details were finalised.

“We just went out for $10 million in Treasury Notes,” Mr Anderson, who acts as the Government’s placement agent and financial adviser, confirmed.

“We haven’t got the final amounts, but we’re up to $12 million at the moment. The last time we went out we ended up close to $20 million.

“We went out to market expecting, based on discussions with people, to get $10 million and may end up with a little more than $12 million. We’re happy that people have done what they largely said they were going to do.”

Mr Anderson said RoyalFidelity was now tailoring the size of Treasury Note offerings to likely market appetite, with the amount of debt securities issued now much reduced.

“We’re getting smaller chunks of money and smaller offerings, based on what we believed the market wanted and was likely to subscribe to,” he explained. “Each time, we’re getting closer to what the market expectations are.

“This is the last one [for 2015-2016]. The rollover takes place tomorrow of the last issue we did, and these new Notes will be issued tomorrow [Saturday].”

Treasury Notes have replaced Treasury Bills as the Government’s preferred short-term debt security, and the size of each offering has decreased steadily since the inaugural issue last July.

That finished short of its $150 million target, raising $100 million, but the two offerings subsequent to that - in August and September 2015 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 said the latest $10 million offering would bring the Treasury Note near to its first-year debt capital target.

“I believe we’ve met the expectations of the Government in terms of the Treasury Note programme. We went out initially and set a target of $250 million for it, and ended up pretty close to that,” he told Tribune Business.

“As a new programme coming to market, it worked out pretty well. Initially, it was felt it was going to cannibalise the Bahamas Government Stock (BGS) market, but it hasn’t, and has really helped the Government pay down its short-term debt with certain banks, and reduce the cost of that debt.”

Besides raising short-term capital, the Treasury Note programme’s other key goals were to diversify the investor pool beyond the banks and institutional investors who typically bought into Treasury Bills.

And, with the national debt at $6.6 billion and rising, the initiative was also designed to reduce the Government’s borrowing (interest) costs associated with its short-term debt.

Mr Anderson said investor diversification was a longer term goal, as the Treasury Note client pool still largely consisted of institutional investors, such as pension funds and credit unions, although some brokerage clients had bought in.

Greater success had been secured in interest savings for the Government, the RoyalFidelity president saying: “I’m sure they’re not borrowing it at the same rate from the banks. I imagine they’ve saved at least two percentage points.”

Mr Anderson estimated that Bahamas-based commercial banks would likely charge the Government an interest coupon close to the 4.75 per cent Bahamian Prime rate on short-term borrowings.

This compares to the lower Treasury Note rates, which are priced at 1.75 per cent for 30-Day notes. The 90-day version carries a 2 per cent coupon, and the 180-day Notes are at 2.5 per cent.,

Mr Anderson explained that the proceeds from Treasury Note borrowings were chiefly used to pay down existing Government debt, and deal with the ‘rollover’ of previous issues, rather than adding to it.

The BGS issues, which have replaced the Bahamas Government Registered Stock (BGRS) as the longer-term domestic debt security, are employed to both pay down existing debt - largely replace and redeem BGRS issues as they mature - and for new borrowings.

“A new Treasury Note programme and BGS programme will start after July 1,” Mr Anderson told Tribune Business.

“We have yet to determine the final amounts to be raised, the breakdown of the offerings and the timing of it, and the various interest rates to be paid on the issues. These are all being reviewed.

“We’ll be able to advise the market once we get a better sense from Government as to what they want to do.”

Mr Anderson said the Government’s net new borrowings for 2016-2017, based on the Budget, were “relatively small” at around $99 million.