The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The structure and target number for the Government’s proposed Hurricane Reconstruction bond are still being “bandied about”, Tribune Business was told yesterday, although the current goal is to raise $150 million.

Edison Sumner, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chief executive, told Tribune Business that discussions between the Government and private sector over the bond are still ongoing.

“That number is still being bandied about,” Mr Sumner said, when asked how much the Government was seeking to raise from the Hurricane Reconstruction Bond’s issue.

“We had discussions with the Financial Secretary [Simon Wilson] two days ago, and have discussions with the insurance industry.

“The Government is also having discussions with the commercial banks to whet their appetite, and see the level of interest in a type of bond like this,” the Chamber chief executive added.

“The numbers are still being bandied about, and there’s nothing exact, but we’re looking at one or two different scenarios to see how we can get this done in partnership with the Government.”

Mr Sumner’s comments were backed by commercial banking industry sources, who told Tribune Business that the sector and the Government were exploring the possibility of a syndicated loan, as well as a bond, as options for raising the necessary financing.

The banking industry is talking internally to determine each institution’s appetite, and how much each is prepared to lend the Government, either through a bond or syndicated loan.

The former option would operate in a similar fashion to a Bahamas Government Registered Stock (BGRS) offering, where investors are issued with promissory notes (bonds) promising to pay them interest dividends at set intervals, until they get their money back at the maturity date.

A syndicated loan is one where various commercial banks/lending institutions pitch in to lend part of the total sum sought by the borrower (in this case, the Government), thereby sharing the risk.

One banking industry source, speaking on condition of anonymity, told Tribune Business that $150 million was the figure “they’re trying to get to” in terms of the total sum raised by the Government.

This figure, which is said to be subject to change, gives an idea of the scale of destruction wrought by Hurricane Matthew, given that the funds raised will likely be used to bring immediate relief to storm-ravaged areas, and for the rebuilding of uninsured homes and Government infrastructure.

“It’s exploratory, and they’re trying to figure out how to structure it,” the source said of the ongoing discussions.

“At the moment, they’re testing the market to see what interest there will be in this arrangement, whether it’s a bond or not, and to see what they can get in terms of rates.”

Tribune Business was told that the initial bond proposal was for a note that would carry a 10-year maturity, and pay investors an interest coupon of between 1.5-3 per cent.

However, one source said such terms were likely to prove relatively unattractive to institutional investors, such as banks and insurance companies, given that the returns are far below what is offered on typical BGRS issues.

Indeed, a $50 million bond issue, carrying a 5.4 per cent interest coupon and 20-year maturity, was fully placed by the Central Bank on the Government’s behalf just before Matthew’s arrival.

The source said potential Hurricane Reconstruction Bond investors would be comparing the proposed returns offered to that 5.4 per cent, suggesting they would find it unattractive.

They added that some lending institutions had already “maxed out” or gone above their exposure limits to the Government, via BGRS issues and loans, which could further complicate efforts to raise hurricane relief financing.

“It’s not an easy sell to the banks,” the source added, “as they may not want the exposure. And it’s not the time to ask investors to dig deep for a hurricane reconstruction bond when they may need to help themselves.

“There’s only so much money in this market, and you can’t keep going to a stone and beating blood out of it. To get the commercial banks to participate, they’ve got some headwinds blowing against them in that regard.”

It is also unclear whether the Bahamas will be able to access financing from the regional disaster self-insurance fund, the Caribbean Catastrophe Risk Insurance Fund or (CCRIF), now CCRIF SPC, which has released $20 million to Haiti to aid with Matthew rebuilding.

Some insurance sources have told Tribune Business that the Bahamas may not be eligible to receive funding, as it did not contribute to CCRIF SPC’s financing in the last round.

Mr Sumner, meanwhile, said the Chamber’s Board would meet today to “crystallise the policies and procedures” governing how businesses will be able to access incentives and relief post-Matthew.

These will include access to credit for small and medium-sized enterprises (SMEs), either through the Government’s agencies or processes that the Chamber is working on.