The Tribune

• Minister confirms equity for Bahamian investors

• Fund privately managed; similar to APD set-up

• ‘Under-used’ public assets to fund govt share

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian investors will be given the opportunity to own a portion of the proposed National Infrastructure Fund via an initial public offering (IPO), a Cabinet minister confirmed yesterday.

Senator Kwasi Thompson, minister of state for finance, responding to Tribune Business inquiries, said the present plan also calls for the fund - which is being created to pool financing for projects deemed vital to closing The Bahamas’ $2bn infrastructure gap - to be privately managed.

He spoke out after this newspaper obtained an Inter-American Development Bank (IDB) document suggesting that the National Infrastructure Fund may adopt a similar structure to the Arawak Port Development Company (APD) in terms of how it is controlled, owned and managed.

The paper, which provides more details than those offered by the prime minister last week, suggests that the National Infrastructure Fund will be majority private-owned and managed although, as with APD, there will be “reserve matters” or issues upon which government approval must first be obtained before they can

be acted upon.

Affirming that the Fund will be created as a “fund of funds” structure, with a so-called ‘Master Fund’ and a series of underlying sub-funds that each invest in specific infrastructure sectors, such as renewable energy and the Family Islands, the IDB paper proposes how the ownership would be determined.

While the “Master Fund” would be owned and directed by the government, multilateral development institutions such as the IDB, and the private sector fund/asset manager, the underlying funds would each be owned by the investors providing capital for sector-specific infrastructure.

“The entity will be structured as a master fund or ‘fund-of-funds’ - a pooled investment fund that invests in sector specific funds,” the IDB said of the National Infrastructure Fund’s preliminary design.

“The entity will include the best practice corporate governance features of other projects, such as the APD experience with private sector management, private sector ownership majority, reserve matters for the Government of The Bahamas, as well as a public offering for the equity participation of the Bahamian general public.”

Confirming that Bahamian investors will receive the chance to participate, in a bid to create and broaden wealth creation, Mr Thompson said in messaged replies to this newspaper’s questions: “An important component in the proposed plan for the National Infrastructure Fund is the requirement that the proposed Fund opens to individual Bahamian investors who will be able to buy into the Fund.

“This is consistent with this government’s stated objective of broadening Bahamian ownership of productive assets in the country.” No details were provided on how much equity may be made available to Bahamian institutional and retail investors, which is probably because the National Infrastructure Fund is still in the design/concept stage.

However, using APD as the yardstick or benchmark suggests that a collective 20 percent equity stake may be made available via an IPO. The remaining 80 percent ownership of APD is split evenly at 40/40 between the Government and private sector (shipping industry), with both sides dominating the Board of Directors.

“The proposed preliminary structure of the National Infrastructure Fund is to have the core promoters and shareholders of the asset management entity for infrastructure development in The Bahamas represented in the Master Fund,” the IDB document said.

This included the Government; development financial institutions such as the IDB itself, and the private sector fund manager. It added that the ownership structure will “reflect in each one of the sector specific funds the private sector group of investors (local and foreign) whose interests are aligned in the specific sector”.

Mr Thompson, confirming that the IDB document accurately spells out the Government’s intent, said: “The proposed National Infrastructure Fund will also be privately managed and will seek to attract the best Bahamian and global talent to ensure that it optimises the potential to raise private funding and that it operates consistent with best practices from around the world.”

Acknowledging that the National Infrastructure Fund is “still in the development stage”, he described it as a “new, innovative concept to develop infrastructure and wealth creation” with the Government presently seeking feedback from both private sector and public sector stakeholders.

“The proposed National Infrastructure Fund has the potential to mobilise hundreds of millions of dollars in public and private sector funds to support investments in critical infrastructure throughout the country, with emphasis on the Family Islands,” Mr Thompson said, suggesting that the Fund itself will become a sub-fund under the proposed sovereign wealth fund.

The Bahamas was already struggling prior to COVID-19 and Hurricane Dorian to develop, upgrade and repair critical infrastructure assets that must be replicated on all inhabited islands, including roads, bridges, docks, airports, ports, schools, health clinics and such like.

The devastating impact on the public finances from this double blow means the Government has little choice but to seek to attract private financing and capital to fund these projects via public-private partnerships, as it is doing with the $140m Family Island airport enhancements.

The National Infrastructure Fund will be the vehicle for pooling and directing such capital, but the IDB document - designed as part of a bidding process to select the consultants who will devise and advise on its set-up - notes that its formal creation is some months away as the winning firm has nine months in which to deliver its report.

And the Government’s initial participation in the National Infrastructure Fund will likely be financed from the sale and monetisation of “under-used” public assets such as public sector buildings and land.

“Via these mechanisms, the Government of The Bahamas will be able to divest, lease, joint venture or pledge a portion of its under-utilised assets, generating new cash flows which would be used to fund National Infrastructure Fund activities,” the IDB said.

“The initial proposal is to initiate the public sector asset recycling and monetisation activities with the Government’s real estate assets. Later, additional public sector assets could be added.

“The framework proposes the creation of a real estate development fund, in the form of a real estate investment trust or REIT, to recycle and monetise public sector assets. The REIT would be a mechanism and conduit to fund government’s participation in a concept of a sovereign wealth fund.”

Mr Thompson, in his response to Tribune Business, said: “The proposed National Infrastructure Fund could also acquire select government buildings, complexes and land that is suitable for public and private sector business accommodations and use.

“The Government recognises that there is substantial potential value locked in a number of unused or underutilised public buildings and facilities. Many of these can be enhanced or repurposed, and can generate returns for the National Infrastructure Fund while adding substantially to the stock of modern and functional private and public facilities.”