The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s leader yesterday challenged whether the Government would have had to refinance $300m via its ‘debt-for-nature’ deal if it had not previously used assets set aside for this purpose.

Michael Pintard, the FNM leader, in a statement questioned whether the Davis administration would have needed to take out a new $300m loan from Standard Chartered bank to refinance some of its existing bond debt if it had not drawn down on $203m from so-called ‘sinking funds’ during the 2023-2024 fiscal year.

These funds were set-up to accumulate assets specifically to repay debt principal owed to investors when the Government’s bond issues mature, but its own fiscal reports show it drew down $203m from these facilities during the prior fiscal year despite no payments coming due.

Accusing the Government of employing “flashy PR and spin over transparency”, Mr Pintard blasted: “This is the perfect moment for the Government to address a concern the Opposition raised back in September. Why was $200m from the Government’s sinking fund - money meant to pay off this debt and avoid refinancing - used without any prior announcement or explanation?

“We made the point at the time that the Prime Minister was in breach of the law, as Section 51(2) of the Public Debt Management Act requires that any planned use of the sinking fund be disclosed by the minister in Parliament during the Budget exercise.

“Indeed, the Prime Minister must explain why $200m was used from the sinking fund last fiscal year instead of being left to pay off - and not just refinance - a substantial portion of bonds when nothing in your last year’s Annual Borrowing Plan referenced a drawdown on the sinking fund,” Mr Pintard continued.

“After the Prime Minister explains why we have had to refinance a portion of bond holdings for which money was set aside in the sinking fund to pay off, he then must release the full details of this transaction, inclusive of copies of the related agreements. We remind the Government that it is the Bahamian people’s money, and therefore we do not beg a favour when we demand that the Government release the full deal.”

One financial source, speaking on condition of anonymity, yesterday told Tribune Business that the Government had not disclosed the fees it would have had to pay to the Inter-American Development Bank (IDB), Builders Vision and Axa XL in return for underwriting, or fully guaranteeing, the $300m, 15-year loan from Standard Chartered.

And they, like Mr Pintard, questioned why the Government was effectively taking credit for new borrowings when it previously had the necessary assets in the ‘sinking funds’ to repay the $300m that was refinanced. “What happened to the sinking fund money that was set aside for those bonds?” they asked.

“You cannot spend those sinking funds and then take credit for the monies you had to borrow to replace the funds used from the sinking funds. You’re taking credit for refinancing debt for which you already had proceeds set aside. The 15-year loan tenor also does not make sense because it goes longer than the bonds it is replacing. There are no savings beyond the bonds you are refinancing.”

However, Michael Halkitis, minister of economic affairs, said the $300m debt conversion sets an “innovative precedent”. He added that the transaction is the first time a private investor is providing a co-guarantee alongside a multilateral development bank, and is also the first time a private insurer, AXA XL, is providing credit insurance alongside the IDB in support of a sustainable issuance for nature and climate.

“This new financing also features a natural disaster and pandemic clause, advancing the Government’s climate resilience efforts and providing liquidity headroom in the case of adverse climate events,” Mr Halkitis said.

“This project is a part of our debt management strategy focused on structuring innovative external financing transactions that leverage official support and support a decrease in the country’s cost of financing. The transaction marks the second transaction as part of the building a social and inclusive blue economy in The Bahamas, in collaboration with the IDB, the first part of which leveraged a $200m guarantee to raise $500m in the international loan market that was completed earlier this year.

“What that means is we were able to refinance some of our upcoming debt have a long maturity and a lower interest rate, which is a win- win situation.” Mr Halkitis said the Government’s repurchase of almost $216m in Bahamian foreign currency bonds that were listed and traded on major international stock exchanges was a part of the debt conversion project.

“It is a part of it. As a matter of fact, that’s what a big part of this transaction is - the repurchase of $218m in nominal value. What that means is you have your bonds traded on the market. A lot of them have been trading at what we call a discount, less than their par value,” said Mr Halkitis.

“When the Government issues are gone at the end of the term, that bond, we pay what we call par value, 100 percent. To the extent that some of those were trading at less than 100 percent, to be able to buy those back... we achieved some savings by that. And so there’s a part of our strategy. It’s a big part of this transaction.

Mr Halkitis said the Government will be looking out for similar opportunities to refinance debt at a lower interest rate as part of its liability management strategy.

“We realise the savings and it’s something, when we speak about liability management, it’s something going forward that we intend to continue. Our objective is to lower the cost of our debt, meaning any opportunity that we have to refinance it, to refinance high debt at a high interest at a low interest level, we save,” said Mr Halkitis.

“The idea is that, going forward, we continue to look for opportunities to achieve lower cost, as well as have a smooth maturity profile. You’re trying to get a smooth maturity profile, meaning you don’t have all of the indebtedness coming to you in one particular year. You want to smooth it out so you have a little bit coming to you every year. That way you are better able to plan and to refinance.”