By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Opposition will “most likely” raise concerns in the House of Assembly over the Government’s increasing use of special purpose vehicles (SPVs), its deputy leader said yesterday.
K P Turnquest told Tribune Business that his “major concern” was whether these entities were being used to ‘hide’ the true extent of the Government’s debt.
He was speaking after Tribune Business revealed that the Government is employing an SPV to not only acquire UBS House, but finance it via the issuance of $20 million worth of government bonds to Bahamian investors.
Although it will ultimately be owned by the Public Treasury, the structure underlying the SPV will allow the $20 million debt - to be repaid to investors via a portion of future lease/rental payments - to stay off the Government’s ‘balance sheet’. As a result, it will not add to the $6.778 billion national debt.
“These off-balance sheet-type SPVs are all creative ways of raising funds,” Mr Turnquest told Tribune Business. “However, the reality is that they all represent contingent liabilities for the Government, and as such they do add to the national debt.
“That is my major concern, and it is a significant concern. It is again taking away some of the fiscal headroom we have in the event of a disaster or major unplanned expenditure that becomes necessary.”
The Government has shown an increasing fondness for using SPVs in a variety of transactions. Apart from the impending UBS House deal, it created Bahamas Resolve as such an entity to absorb $45.2 million in ‘toxic’ loan assets from Bank of the Bahamas as part of the latter’s $100 million bail-out.
The remaining CLICO (Bahamas) insurance policies are also set to be transferred to an SPV before their planned sale to an eventual buyer, while the same sort of entity will issue the $650 million in rate reduction bonds (RRBs) to refinance the Bahamas Electricity Corporation’s (BEC) debt.
While each SPV, and its use and management, needs to be judged on its merits, Mr Turnquest pointed out that these vehicles - and their off-balance sheet status - had played a key role in the US sub-prime mortgage crisis, which turned into the ‘credit crunch’ and ultimately the 2008-2009 recession the Bahamas is still struggling to recover from.
The FNM’s deputy leader queried the potential for “a domino effect” if any of these SPVs were unable to meet their debt repayment obligations, and urged the Government to clarify how it planned to use the UBS property on East Bay Street.
“Are these assets absolutely necessary, or are we just collecting them? What is the proposed use of the building?” Mr Turnquest asked.
“We have to know what the Government is exposing us to in terms of liabilities, and increase in the national debt and requirements on a recurrent basis to service them.”
Comments
banker 8 years, 1 month ago
Here are some questions that come to mind about the government's SPV's:
(1) Is the Resolve SPV being used to continue the charade of BoB's non-compliance with the Central Bank's key capital ratios?
(2) Is the Resolve bond to BoB under-performing, and if so, are the taxpayers paying the bond payments to BoB?
(3) Is there provision for illiquidity and winding down of the Resolve SPV and if so, is the government on the hook to transfuse cash to keep BoB afloat?
(4) Why is there no regulatory prosecution of the Government's failure to get Central Bank approval for the Resolve SPV as defined by section 3 (a) of the Banks and Trust Companies (Equity Investments) Regulations 2005?
(5) Why is BoB allowed to operate in violation of key capital ratio requirements? Shouldn't someone go to jail and BoB be wound down?
(6) Why is not Resolve suing the parties who took out the toxic loans?
(7) What are the legal provisions for the SPVs when they are in default? Is there a winding down or does the Treasury or government guarantees them. If the conditions are such that the government guarantees them, then shouldn't those conditions be gazetted as in a normal, non-corrupt democracy?
Somebody should be going to jail, and Crisco Butt should resign.
bogart 8 years, 1 month ago
Excellent. Quite incredible that all parties vying to run this Bahamaland are not asking the same questions. A public inquiry, public forum, town hall meeting, has not even been suggested by them and this obvious silence may indicate some shortfall in fiscal responsibility. As a national entity affecting every living Bahamian and those not yet born, customers, workers, lawyers, retirees, minority shareholders etcetc with those massive shortfalls the lack of questioning even half as many as you have raised is astonishing. It seems they prefer to do the simple knee jerk public responses like protesting against foreign investors. Mind you selling bonds have Bahamians buyers versus Govt taking out loans with the Chinese. How did BOB shares list for 5.22 with almost no buyers and when the 40 million offering floated it almost instantly dropped to an incredible 1.96 losing some 70 million market value and yet still no investigations publicized? If anyone got back 1.96 change from any supermarket instead of 5.22 after buying something then you you would hear some cussing. Its all of our money.
sheeprunner12 8 years, 1 month ago
It is called ............... creating a new loop of hidden public debt (outside of the established rules to account for in Parliament) .......... just like how civil service pensions & other retiree benefits are not counted as public debt
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