The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must focus on “leading capital market developments in the Caribbean” and stop being a follower, an investment bank chief is urging.

Michael Anderson, pictured, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that The Bahamas was “one of the last” in the Caribbean to list and trade government debt via the local stock exchange.

While praising the Government’s confirmation that it will list $3bn of medium and long-term bonds on the Bahamas International Securities Exchange (BISX), Mr Anderson said this nation needed to move beyond simply playing “catch up” to regional rivals.

He also called on the Government to “fulfill its promise”, made in 2004, and hand registrar and transfer agency responsibilities for its listed debt securities to the private sector via the Bahamas Central Securities Depository (BCSD).

The pledge was made as part of a wider capital markets review, but the Government has instead decided to create its own Bahamas Government Securities Depository (BGSD) and leave responsibility for maintaining records of who owns its debt with the Central Bank.

The privately-owned BCSD handles share registrar and transfer agency duties for BISX’s listed companies, and Mr Anderson said his argument for the Government to further relinquish control by moving this function from the Central Bank was “not purely” motivated by RoyalFidelity’s one-third ownership of the BCSD.

Pointing out that “everyone” in the Caribbean had already accomplished what the Government and BISX had announced last week, the RoyalFidelity chief told Tribune Business: “We’d be one of the last capital markets to move government debt on to the stock exchange.

“We’re kind of catching up a bit, and what we should be focusing on is how we lead capital market developments from a Caribbean perspective and not simply following everyone else.

“I’m hoping to see them take additional steps to privatise, from a securities perspective, how they deal with government debt. It just improves the efficiency of process and standardises how all securities in the market are dealt with.”

Although secondary market trading of government bonds via BISX is not scheduled to begin until November, with listing taking place this month, Mr Anderson said those were valid reasons why the Minnis administration should also entrust its debt record-keeping to the private sector.

“Back in 2004 the Government had a committee set up to review capital market development,” he recalled. “The Government confirmed at that stage it would move its debt on to the stock exchange and issue it through the Central Securities Depository.

“What the Government is now doing is listing their securities on the stock exchange but are creating their own securities depository. That means one promise from government in 20404 has yet to be fulfilled; moving the registry for its securities to the private sector and out of the Central Bank, which would be a significant step for the market.”

While the Government will retain control over the settlement process, and the records of who holds its debt, Mr Anderson praised it for relinquishing its grip on the pricing (interest rates) for its issues to the market.

“I think it’s a very positive initiative by the Government and, going forward, it allows the market to set the rates for government debt,” he told Tribune Business. “When the market trades government debt, it’s going to fundamentally determine whether it pays a premium or discount, and set the rate at which it buys government debt.

“Other people will be able to raise and price their debt against the Government’s, and the market will become more efficient at pricing debt.” Previously the Central Bank set the price and interest rates for government debt “artificially” via its over-the-counter auction method.

“Going forward the problem for government may be that it does not control the rate at which it issues paper,” Mr Anderson added. “The intention will be that market forces dictate more, and the Government is acknowledging that, which is a big step for government.”

The RoyalFidelity chief said the secondary trading of medium and long-term government debt via BISX will be “a major revenue earner” for the stock exchange given that it will be the largest, deepest and most liquid security listed.

Many of BISX’s listed equities are thinly traded because only a relatively small portion of the stock is in public hands due to companies being controlled by a single majority shareholder or group of like-minded shareholders. CIBC First Caribbean, for example, is 95 percent owned by the Canadian parent, while both FINCO and Fidelity Bank (Bahamas) are 75 percent controlled by their own majority shareholder.

“What you’ll see in terms of tradable securities, that $3bn that gets added will be a significant component of trading going forward,” Mr Anderson said. “It’ll be the single largest bloc of securities available for trading by the market.

Ends

“The larger amounts of equities are not necessarily tradable, so they will have a significant impact on trading volumes across the stock exchange.”