The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official is asserting that this nation’s bond prices “don’t reflect the confidence investors have in The Bahamas” and “a benchmark issue” may be needed to help address this.

Simon Wilson, the Ministry of Finance’s top official, told Tribune Business that, rather than issue new sovereign debt, the Government could seek to consolidate existing bond issues via a collective $1bn-plus refinancing that would help establish “a benchmark yield” for all Bahamas issues traded on the international capital markets.

Speaking as the discounts and yields sought by investors in selling/acquiring pieces of The Bahamas’ last two sovereign bond issues continue to lag, and show no immediate signs of recovery, he added that this nation also needs to expand the investor pool trading its debt. All recommendations and policy suggestions would go through the newly-established Debt Advisory Committee, chaired by former minister of state for finance, James Smith.

Data from the Frankfurt stock exchange shows that the $600m bond, placed by the Minnis administration at the height of the COVID-19 pandemic in 2020 at an 8.95 percent interest rate is presently trading at a 22 percent discount to its face value. A month earlier, on March 16, it was trading at just a 14.5 percent discount.

And the yield on the same issue, whose principal is due to mature for repayment in 2032, has also increased from 11.648 percent just over a month ago top 13.23 percent. Meanwhile, the $650m bond placed in 2018 at 6.95 percent, and which represented the last major foreign currency issue before the COVID-19 pandemic, is trading at a near 22.5 percent discount and yield of 11.78 percent.

This compares to a 16 percent discount, and 10.22 percent yield, just over one month ago on March 15 for an issue whose principal is set to mature in 2029. While some observers might argue this shows confidence in The Bahamas’ economic and fiscal turnaround continues to fall, Mr Wilson told Tribune Business: “I wouldn’t be so concerned.

“Our bonds are held closely by a small group of investors. One of the challenges we have is that we are not on an index, such as the JP Morgan Index. If our bonds were indexed, placed on an index, the potential amount of persons willing to purchase our bonds will increase.

“That will have some downward pressure on pricing. What we have to do is find ways to find new investors. For us it means it’s an education process, talking to investors, talking to banks and having strategy.”

Besides increasing the number of investors in The Bahamas’ foreign currency debt, Mr Wilson added: “One of the things we need to do is have a benchmark yield. Our offerings are relatively small; $100m, $500m, $600m. Investors like bigger offerings.

“We need to think about having a benchmark issue, $1bn or so. That does not mean new debt. It’s sweeping up smaller debt investors are holding and taking them up. We have to think about that. It enhances liquidity. Our bond pricing doesn’t reflect the confidence investors have in The Bahamas and certainty. That’s something for the Debt Advisory Committee to look at. They’ll be looking at this strategy, and coming back to government with their recommendations.”

It was previously suggested that the collapse in the value of The Bahamas’ sovereign bonds - which occurred simultaneously across both issues just prior to the start of October, and from which they have yet to recover - seemed to coincide with the Prime Minister’s September 27 comments that the Government would “seek to renegotiate” and restructure existing debt issues if necessary.

Since then, the Government has struck the “repo” deal with Goldman Sachs which effectively saw it receive $206.5m in foreign currency bridge financing at a relatively low rate in return for pledging $235m worth of US treasuries - held in “sinking funds” to finance the repayment of maturing bond issues - as collateral.

However, it has held-off on placing any long-term foreign currency bond issues since taking office citing unfavourable global market conditions. The former Minnis administration was working on a $700m issue, some $200m of which would be guaranteed by the Inter-American Development Bank (IDB) via its ‘Blue Economy’ initiative, in a bid to secure a lower interest rate for the Government.

Meanwhile, Mr Wilson reiterated that the Davis administration has “no concern” about its ability to refinance $1.9bn in Bahamian dollar-denominated debt coming due this year. “What we’ve seen in recent offerings is that the last four have been over-subscribed,” he told this newspaper. “We’re going to continue our education campaign, talking to investors, talking to banks.

“Interest is growing, and we’re tweaking our strategy, but I think we’re OK. With the domestic side, there’s no reason to be concerned. There are no issues whatsoever. I think we’re comfortable there. All of our borrowings have been inside the yield curve, which has been good for us. It’s been well-received by the market. There’s a lot of work to be done, though. We can’t celebrate yet.”

In February 2022, a near-$48m domestic bond issue saw only around $12m or 25 percent placed, although a subsequent $40m offering was fully subscribed.