The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s leader yesterday argued that investor confidence in The Bahamas’ sovereign debt is at “an all-time low” given the deep discounts, and high yields, at which its bonds are trading.

Michael Pintard, in a statement, demanded that Prime Minister Philip Davis “execute a sound and credible fiscal plan” to restore the faith of this country’s investors, lenders and creditors as present bond market conditions suggested they “are simply not buying his talk”.

In particular, he pointed to the discounts and yields sought by investors in selling/acquiring pieces of The Bahamas’ last two sovereign bond issues. 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 is presently trading at a 14.5 percent discount to its face value.

And the yield on the same issue, which is due to mature for repayment in 2032, currently stands at 11.648 percent. Meanwhile, the $650m bond which was placed in 2018 at 6.95 percent, and represented the major foreign currency issue before the COVID-19 pandemic, is trading at a 16 percent discount and yield of 10.22 percent.

Tribune Business reported these details on Monday, and said the discounts and yield data indicate that The Bahamas would have to pay double-digit interest rates to place any foreign currency bond issues in the current capital markets environment, further increasing the burden on local taxpayers.

This was picked up yesterday by Mr Pintard, who argued that the price of both bond issues had “crashed” ever since the 2021 fourth quarter - something he interpreted as a lack of investor and market confidence in The Bahamas’ fiscal and economic turnaround strategy given that each had been trading above their “face” or “par” value earlier in the year.

One source, speaking on condition of anonymity, said 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.

Mr Pintard argued yesterday: “Neither the supplementary budget, the Fiscal Strategy Report nor this recent mid-term Budget statement by the Davis administration has arrested the significant fall-off in The Bahamas’ bond prices. Further, just last month, the Central Bank reported that the Government’s recent attempt to raise funds in the domestic market was substantially undersubscribed.”

That referred to a near-$48m domestic bond issue, of which only around $12m or 25 percent was placed, although a subsequent $40m offering was fully subscribed. The Opposition leader, though, said these were all signs that the Government is struggling to raise debt financing in both the Bahamian and international markets - something that it has repeatedly denied.

“Clearly, despite the bombast and rhetoric from the Prime Minister about his government restoring fiscal health, international and domestic creditors are simply not buying his talk,” Mr Pintard said in a statement that seemed timed to coincide with this year’s mid-year Budget debate in the House of Assembly.

“Their actions in the financial markets demonstrate their lack of confidence in the fiscal plans and strategy of this Davis administration. No matter how much the Prime Minister and his officials seek to distract and deflect, investor confidence in Bahamas government debt is at an all-time low.

“This, frankly, is an urgent matter that transcends partisan bickering. We therefore call on the Government once again to articulate and execute a sound and credible fiscal plan that will again engender the confidence of the creditor community and ensure that, as a country, we maintain our access to financial markets at affordable rates.

“Unless the Government develops and executes a sound fiscal and economic plan, we all as a country will face the prospect of significant hardships. Of course, these hardships can be avoided if the Government does the right things now.”

Senator Michael Halkitis, minister of economic affairs, declined to respond to Mr Pintard when contacted by Tribune Business yesterday. However, on Friday he told the weekly press briefing by the Prime Minister’s Office: “The Government of The Bahamas is having absolutely no difficulty in raising money.

“Unfortunately, this is a narrative being pushed by the Opposition and opposition forces, but there’s absolutely no truth to that.” And the Government will likely retort that its Minnis administration predecessor, of which Mr Pintard was part, played a far greater role in getting The Bahamas’ fiscal affairs into their current state given that it has barely been in office for six months.

However, the Free National Movement (FNM) will likely counter-argue that the debt and deficit blow-out was only produced by necessity as a result of Hurricane Dorian and COVID-19, the latter of which caused the Bahamian economy to almost collapse overnight and required the borrowing of hundreds of millions of dollars to support devastated families and businesses.

Mr Pintard subsequently told Tribune Business: “The broader point is that the Government is trying to convince Bahamians that they have no serious challenges with respect to going out and finding capital. The agreement we struck with Goldman Sachs was obviously an example of the dire straits we are in.”

Rather than a sign of strength, the Opposition leader suggested that the “repurchase” deal struck with the global investment bank was a sign of weakness because it required the Government to put up more than $235m worth of assets that it owns as collateral to secure $206.5m in cash.

He argued that the Government had never before had to provide security for a short-term two-year loan such as that provided by Goldman Sachs, adding that this was “indicative of these challenges”.

Mr Pintard said his conversations with both the Government’s domestic and foreign lenders/creditors, who he did not identify, indicated a lack of confidence in the Government and its economic and fiscal turnaround strategy

“No amount of commentary they make is going to change that situation,” he told this newspaper. “No matter what they have said, what they intend to do and what they say they have done, the markets are not responding in a favourable way.

“We’re not going to get past what we’re in unless the Government lays out a plan that is compelling. The Government is spending a lot of time worrying about the political implications more than anything else. Now that you’re in office, what are you going to do? What are your plans?

“What is the plan that is going to be accepted locally and sends the right signals locally and internationally, and that is serious about putting our fiscal house in order? If you are upfront with people about what the state of affairs is, people are more likely to go along with the plan and buy-in,” Mr Pintard continued.

“There will be some challenges upfront, but we will be able to steady the ship and come out fine on the other end.”

Mr Pintard accused the Government of “saying one thing and doing something completely different”, noting that its Fiscal Strategy Report indicated it plans to cut spending across various ministries but, in reality, it had already expanded the size of the public sector through hirings.