The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A prominent Bahamian banker yesterday argued that the Government could have obtained an interest rate "lower than 8 percent" on its $600m bond offering had it unveiled a debt management strategy.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that while more information was needed to determine whether the Government had obtained a good deal on its latest foreign currency borrowing, he believed the debt servicing costs could have been around one percentage point lower than the 8.95 percent that the issue was ultimately priced at.

That interest coupon means that Bahamian taxpayers, via the Public Treasury, will have to pay around $600m across the 12-year bond's lifetime just to service the debt, meaning that the total cost - in interest and principal to be repaid - will essentially be some $1.2bn or double what has been raised.

"I personally believe we could have done better than 8 percent based on the information I have available to me," Mr Bowe told this newspaper. "We have not done ourselves a service by not having a clearly articulated debt management plan."

Noting that the interest rates sought on The Bahamas' existing foreign currency debt in the secondary market had come down from 12-15 percent at the COVID-19 pandemic's peak to around 8.5 percent presently, Mr Bowe said the drop had not resulted from any actions taken by this nation or its government.

"How much lower could it have been had we done things to gain investor confidence?" he asked. Referring to The Bahamas' last foreign currency bond, which was placed in late 2017, Mr Bowe added: "It's incorrect for us to believe it was 8.95 percent versus 6 percent. We're not speaking about a 300 basis points difference. We're talking about whether we could get below 8 percent or not."

The Fidelity chief said the Government had not articulated the "risk premium" paid by investors in the $600m offering, which was the interest rate component representing the extra compensation sought as a result of COVID-19, the country's downgrade to 'junk status' with Moody's and Standard & Poor's (S&P), and the near-total tourism industry shutdown.

And he also queried the Government's strategy to push the principal repayment, or "balloon payments", back to the final three years of the 12-year bond's maturity. Mr Bowe argued that starting the repayments earlier, albeit in smaller sums, would give investors and the global capital markets greater confidence in The Bahamas' ability to repay and possibly earn a lower interest rate.

With the Government's direct foreign currency debt standing at $2.951bn at end-June 2020, or 36 percent of its total debt, the net $352m increase produced by the $600m offering will have taken the former figure past the $3bn mark.

The Government is effectively betting that the economy, and especially tourism-related foreign currency inflows, will recover in sufficient time to enable it to service the increased US$ debt and avoid a significant depletion and rundown of the external reserves that support the one:one currency peg.

James Smith, a former minister of state for finance and Central Bank governor, acknowledged to this newspaper that the $600m bond offering was effectively a move to shore up the external reserves in the short-term, and ensure The Bahamas' has sufficient funds to meet its import bill, that could produce in the medium to long-term if the economy does not rebound sufficiently.

"That actually is our second major concern," he added of increased pressure on the external reserves from greater foreign currency debt servicing demands. "Right now the idea is to get foreign currency so we can all eat.

"And, when it comes time to repay the debt, we will have streams of visitors to generate foreign currency. That means we have to deal with COVID-19. If we don't do that we will be in real trouble."