The Tribune

By NEIL HARTNELL

and YOURI KEMP

Tribune Business Reporters

The government may move Bahamas Power & Light (BPL) aside and secure the nine-figure refinancing the state-owned utility requires itself, a Cabinet minister revealed yesterday.

Desmond Bannister, pictured, minister of works, told Tribune Business that “market conditions” post-COVID-19 will dictate whether the government has to replace BPL, and effectively stand in its shoes, to obtain the necessary sums to transform the energy provider’s financial fortunes.

Speaking in the wake of the government tabling two House of Assembly resolutions to refinance $246m worth of collective BPL loans that it already guarantees, Mr Bannister indicated that the strategy to place the electricity monopoly on a secure footing may have to be revised yet again.

BPL had itself been seeking to obtain the required turnaround financing through the placing of a Rate Reduction Bond (RRB) with local and international investors prior to the pandemic, but COVID-19 brought this to a seemingly temporary halt. However, the minister told this newspaper yesterday: “BPL is not going out to market right now.....

“There’s a question as to whether BPL will go out at all, and if the government will do the whole thing. We’ll watch the markets and see what’s best. It would simply mean that the government would get the best deal it can get, and the funding would be available through it to BPL. BPL would be responsible for repaying it.

“If the market conditions do not improve sufficiently that BPL can go out on its own, that’s something that will have to be decided. We have to look at the economy and what the markets are like, and what type of appetite financiers have.”

Mr Bannister denied that international and local investor appetite towards BPL’s proposed RRB offering had been cool, or lukewarm at best, adding: “Every indication that BPL got was that it was being well received in the marketplace before COVID-19 came out.”

However, the minister’s revelation that the Government may have to stand in BPL’s place to obtain the required financing - last pegged at $580m - will heighten suspicions that both international and Bahamas-based investors had concerns about the troubled energy utility’s ability to financially support itself without state backing.

Anthony Ferguson, CFAL’s principal, speaking to a webinar hosted by the Chartered Financial Analyst (CFA) Society of The Bahamas on Thursday, voiced such concerns when he said BPL could not place the RRB pre-COVID-19 because there was no investor appetite to buy-in given the risks such an investment presented.

“What they were trying to do in the first instance, just a little background, was something similar to what was done at the Nassau Airport Development Company (NAD) where you have the passenger facility and passenger security charge to service the debt,” Mr Ferguson said. “The challenge with BPL is that it is not that they wanted to delay it, not that COVID-19 caused the delay, but there was no appetite for the debt of BPL for many number of reasons.

“First and foremost, the Government is still controlling it so that means it is poorly managed - and has been poorly managed - and will continue to be poorly managed. And, until you can give investors confidence that the management has the capacity to manage in an efficient manner with the reduction in the costs of generating electricity, the appetite for BPL debt will continue to be extremely low except for National Insurance Board (NIB) and government controlled entities.”

Mr Ferguson added: “The fact is there was no appetite for BPL, and that’s why they didn’t do it. Until BPL is prepared to make some tough decisions, or the government is prepared to make some tough decisions in terms of the management and getting out of the management a bit and making it more efficient......

“What the Government should really do is privatise generation and keep transmission and distribution. That way they can control the cost of distribution to the end consumer. I do not see BPL being able to raise, even with a rate reduction bond, anything [with an interest coupon] under nine or 9.5 percent.

“One of the other reasons why they weren’t able to do it is because the lenders wanted it to be variable, and not at a fixed rate. It was initially, when it was conceived, it was going to be 0.2 or 0.3 cents per kilowatt hour [debt servicing charge],” he added.

“But, when you look at the expanding inefficiencies and growing debt, that was not going to be sufficient enough to cover the debt. So they [the investors] wanted to make it variable, and adjust it when the debt increased and, of course, I don’t think government was prepared to make that tough decision so as such they were not able to refinance their debt.”

The uncertainty surrounding BPL’s debt refinancing, and the strategy behind it, could not have occurred at a worse time for The Bahamas given that energy sector reform - especially more reliable supply and lower costs - will be vital to lifting this nation out of a COVID-19 recession that could cause the economy to contract by between $1.5bn to $2bn.

Should the Government have to stand as the borrower in BPL’s place it could potentially undermine a key aspect of the RRB strategy, which was to structure the refinancing in such a way that it kept the debt off the state’s balance sheet and eliminated previous loan guarantees made on the utility’s behalf.

The bonds were supposed to be issued, and placed, by a special purpose vehicle (SPV) to help refinance $321m debt while providing more than $220m in new working capital to fund upgrades to BPL’s long-neglected transmission and distribution (T&D) network. The utility’s entire turnaround plan, and the provision of reliable, lower cost energy to its business and residential consumers, depends on placing this bond issue.

The initial obstacle to placing RRB was the need to obtain a credit rating for the issue from the major rating agencies - something that was not accomplished prior to COVID-19. And Mr Bannister said in early March 2020 that feedback from the international capital markets had urged the Government to amend the bond’s supporting legislation to provide investors with greater protection given that the issue would have no state guarantee behind it.

BPL had previously confirmed that an additional charge, equivalent to 15 percent of a customer’s monthly electricity consumption, would be added to monthly bills to service the debt and pay interest to bond investors. This meant Bahamian businesses and households will ultimately be the ones to pay for the refinancing, although BPL aims to more than offset this through lower electricity supply costs.