By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Government last night said it exploited "more favourable market" conditions to "re-open" its recent $600m bond and raise a further $255m in US dollars at a lower interest rate.
Marlon Johnson, the Ministry of Finance's acting financial secretary, told Tribune Business that the Government will "take" any opening to raise necessary deficit financing where it can achieve "optimal terms" amid the COVID-19 pandemic's economic fall-out.
Disclosing that the $225m issue received "close to $600m of offers", or more than three times' the amount sought, Mr Johnson said the ability to place it at an 8 percent interest yield - a rate some 125 basis points lower than the 9.25 percent obtained just over a month earlier - "signals the credit markets have confidence in The Bahamas" and its economic re-opening.
The 8 percent rate is still higher than the 6 percent paid by The Bahamas on its last pre-COVID bond offering in late 2017, and before the latest spate of creditworthiness downgrades by Moody's and Standard & Poor's.
Tribune Business calculations show that taxpayers will be paying $18m in annual interest (debt servicing) costs on the latest $225m borrowing at 8 percent, as opposed to $13.5m at the old 6 percent rate. This equates to an additional $4.5m per year in interest payments, or $54m over the $225m tranche's lifetime, until it matures some 12 years later in 2032.
Those figures assume the $225m is not subsequently refinanced at a lower rate, and does not account for the impact of debt principal repayments that begin in year ten. Nevertheless, back-of-the-envelope calculations show that total interest payments on the new tranche will total $216m - almost as much as the principal amount itself.
"As always, we recognise that we have a borrowing requirement and where the market is favourable and we find an opportunity we look to take advantage of it," Mr Johnson said of the rationale for returning to the international capital markets so quickly.
"That's essentially what this was. The markets have been receptive to the progress of the economy, and opening of the economy, and the [$600m bond] has been trading well. We re-opened that bond and accessed some additional funding. We were able to secure a premium over par, and secure $240m of proceeds on $225m worth of bonds."
The Ministry of Finance, in a statement, said the market's "rally" over the $600m bond had enabled it to return to the market and craft an "order book that was multiple times oversubscribed with more than 75 global investors participating in the final transaction".
"The notes priced above par, at 106.783 percent, thereby generating gross proceeds of approximately $240.3m for the Government (excluding accrued and unpaid interest), compared with the $225m value of the notes," it added. The terms of the extra $225m bonds are the same as the maturity and other conditions attached to the original $600m issue.
The latest $225m raise means that the Government will be less dependent on the Bahamian capital markets, and institutional investors such as banks, insurance companies and pension funds, to finance what was said to be the remainder of its $400m deficit funding for the 2020-2021 fiscal year.
Mr Johnson, asked whether the Government could have got a cheaper interest rate in the domestic market, reiterated that the Government had always planned to finance the bulk of its deficit via foreign currency to "buttress and support" the external reserves given the absence of tourism-related inflows.
"Where we see opportunities to raise funding on what we consider to be optimal terms in the circumstances we take it," he said, adding that no determination had yet been made on whether the Government will seek to finance the remainder of its projected $1.327bn deficit in the local markets, internationally or a mixture of both.
"This signals the credit markets have confidence in The Bahamas and future of The Bahamas," Mr Johnson told Tribune Business as he defended the 8 percent rate as the best available amid COVID-19 and recent downgrades.
"We're in a situation now where a lot of our regional peers are shut out and cannot access the private credit markets. It's a sign of confidence for us when a lot of jurisdictions are shut out and can't access it. A lot of the region collectively is challenged."
The $225m proceeds will be used to finance the Government’s general 2020-2021 budgetary needs. A sinking fund will be created to pool money to repay the debt, with the issue's placement again led Credit Suisse Securities (USA).
Chester Cooper, the Opposition's finance spokesman, last night called on the Government to provide further details surrounding the latest borrowing.
Comments
Dawes 4 years ago
Or it suggests that you all failed a month ago on the bigger amount.
tribanon 4 years ago
Bingo!
Bahamabird 4 years ago
If this going to be used to pay down the higher interest loan or are we just going into more debt? Johnson can spin all he wants, but he is at the helm and we are going over a cliff. Long after he retires (with a comfy pension) others will have to deal with the fall-out of our debt level.
tribanon 4 years ago
The grossly incompetent Marlon Johnson having any type of role in our country's finances at a time like this is indeed a most scary thought.
ThisIsOurs 4 years ago
I don't believe he's incompetent. I wonder if anyone truly is. Minnis must be good at something.
What we have is a govt filled with persons in the wrong roles. Doing things they either don't have the qualifications or experience to do. Look at Adrian Gibson, bright young man but not qualified to be executive chairman of a major utility. A blind man could see conflict coming when you put a man such as that to lead trained MALE engineers. It's like wild animals in a pack, someone gonna be butting heads because they "stronger" than the leader. Said so from the minute they made the announcement
Johnson would have made a much better press secretary than Newbold for example. He has sufficient knowledge of how govt runs to speak intelligently about it and he's good at positive spin.
Right people in the right places for the right reasons. It will never happen of course.... unless the Bahamas is flattened and they are forced to listen to the only people capable of fixing it. But as long as we could limp along , they'll continue to make their ill qualified sweethearts cabinet ministers and such
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