The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

BAHAMIAN commercial banks are in discussions over providing up to a $700m syndicated loan to the Government to bridge the gap until it places its international bond financing later this year.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, yesterday confirmed to Tribune Business that industry talks about the “appetite and willingness” of each individual institution to participate had been ongoing for the past six weeks.

Revealing that the loan amount, and terms and conditions, have yet to be tied down, he suggested that all commercial banks would be seeking an “appropriate exit strategy” and timeline for when this would be achieved in return for extending any credit to the Government.

“I know there have been financial soundings,” Mr Bowe told this newspaper, “as to appetite and willingness to participate. They’re certainly looking at what would be palatable in terms of what the existing limitations expressed are, and terms and conditions that would be necessary.

“That [the loan] is an element in the works, but the reality is that existing exposures mean it will not be traditional. It will have to have the appropriate exit strategy and the banks will have to have the appropriate horizon, so there’s work to be done. 

“It’s been in the works for six weeks, but they’ve not yet got to the point of a term sheet and fixed dollar amount. It’s largely been a sounding exercise.”

Marlon Johnson, the Ministry of Finance’s acting financial secretary, could not be reached for comment before press time last night despite multiple calls and messages being left.

However, it is not unusual for the Government to raise such a syndicated loan from the Bahamian commercial banking industry to act as so-called ‘bridge financing’ - funding that fills a short-term gap - until long-term borrowings can be put in place.

This is what the Minnis administration is doing here, raising short-term financing that will be replaced and paid out by the proceeds from the $700m international bond issue that it plans to place with foreign investors in late September/early October this year if market conditions are favourable.

A syndicated loan is one in which multiple banks agree to each extend a portion of the required credit, meaning that no single institution is responsible for the entire loan. Given their deeper balance sheets and access to foreign currency, these syndicates are typically led by the Canadian-owned banks - usually Royal Bank of Canada (RBC) or CIBC FirstCaribbean International Bank (Bahamas).

In return, the lead banks often work with a major financial institution such as Credit Suisse or J P Morgan Chase to place the subsequent international Bahamas sovereign bond issue. One source, speaking on condition of anonymity, said yesterday: “The banks are trying to syndicate $700m. That’s getting done at the moment.

“I think RBC, CIBC are all in that space trying to put that together and vying for the right to later take it out to the international market. They’re [the Government] trying to get the $700m at the front end and pay it off with the international bond.”

The present syndicated loan will be seeking to exploit the $2.3bn-plus in surplus liquidity in the commercial banking system, which represents assets available for lending purposes but which have yet to find a qualified borrower.

However, as indicated by Mr Bowe, the loan may first have to overcome signs some institutions may be approaching their regulatory limits in terms of the amount of government debt they can carry on their balance sheets - especially following the consistent rating agency downgrades of the Government in recent years.

Institutional investors have also increasingly gravitated towards short-term bonds due to the increased risk surrounding lending to the Government as a result of Hurricane Dorian and COVID-19, and the devastating impact this has had on its finances with $1bn-plus annual deficits and a national debt projected to breach the $10bn mark this fiscal year.

Still, the Government’s annual borrowing plan - unveiled last week - confirmed it is seeking a $200m Inter-American Development Bank (IDB) guarantee for the proposed $700m foreign currency bond issue that will be placed during the first half of the 2021-2022 fiscal year, again with the aim of obtaining more favourable terms and interest rates. The latter will be fixed.

“The Government proposes the issuance of an aggregate US$700 million in external bonds, capitalising on the strengthening market demand fundamentals and exploring structuring alternatives that would result in efficient pricing,” the plan said.

“The government will leverage a prospective US$200 million guarantee from the IDB, to scale up fund raising in the international capital market. Subject to market conditions, and to reduce funding risk, bond raising initiatives will be positioned in the first half of the fiscal year.

“Bond maturities will be selected to minimise future refinancing risk. Bonds will be fixed rate to reduce the Government’s exposure to interest rate risk. Aside from these indicative transactions, the Government will explore liability management opportunities for its existing portfolio of bonds.”

The plan added: “Of the proposed $259.2m in foreign currency loans, $19m is to be sourced from a commercial bank, leveraging a multilateral guarantee, which will enable the Government to secure more favourable pricing. The Government also intends to seek funding from an international financial institution in the amount of $160m, which is proposed for the second half of the fiscal year.”

The remaining $80m is to come from the draw down of loans from the IDB and Caribbean Development Bank (CDB).