The Tribune

By NEIL HARTNELL

TRIBUNE Business Editor

nhartnell@tribunemedia.net

THE GOVERNMENT’S new $1.1bn foreign currency bond carries an interest rate around 0.5 percentage points lower than last year’s similar-sized issue while covering the refinancing of $332m in Grand Bahama Power Company-related debt.

Market analysts yesterday disclosed that The Bahamas’ latest sovereign bond issue, marking its return to the global capital markets after a 17-month absence, seeks to consolidate and push out the maturity of as much as $813m in existing debt by some 13 years until 2039.

The 13-year debt is carrying a 7.7 percent interest coupon, which is lower than the 8.25 percent that attached to last year’s $1.067bn bond issue. It is also slightly below the initial “low 8 percent” range anticipated by capital markets participants, signalling that The Bahamas may enjoy some savings on debt servicing costs compared to the 2025 version.

However, the 7.7 percent interest coupon is still higher than the existing rates for four of the five outstanding bond issues that the Government is offering to repurchase from investors in exchange for the new issue. These carry interest coupons ranging from 6 percent to 7.125 percent, indicating that The Bahamas may have to pay a slightly higher yield or price for extending debt maturity.

Only one of the five existing bonds, placed at the height of the COVID-19 pandemic, carries a higher rate than the new issuance with 9 percent. Still, the new bond will push out debt due to mature in 2028, 2029 and 2033 by an extra 11, 10 and six years, respectively, depending on how many investors agree to exchange their existing debt securities for new.

“The Government intends to use the net proceeds from the sale of the notes to fund the purchase price of the notes accepted for purchase in the concurrent tender offer, repay the $200m term loan of Grand Bahama Energy Company, guaranteed by the Government, and accrued and unpaid interest thereon, repay $131.82m principal amount of, and accrued and unpaid interest on, indebtedness of Grand Bahama Power Company upon maturity, and use any remaining net proceeds for refinancing activities of the Government,” an investor note on the Government’s objectives read.

The $1.1bn bond, though, was never mentioned in the Government’s annual borrowing plan for the 2026-2027 fiscal year that was released just months ago in June 2026 although preparations for the issuance will likely have begun by then.

The plan spoke to external borrowings of just $380.5m, comprising $200m in bank loans with the balance coming from credit advanced by multilateral lenders such as the Inter American Development Bank (IDB). The balance of the Government’s projected $1.024bn gross financing need was to be sourced domestically.

Dr Duane Sands, the Free National Movement (FNM) chairman, told Tribune Business that, as a result, “we are getting to the point where the Government’s fiscal reports are not worth the paper they are printed on because they are not going to follow it and they come up with all manner of excuses as to why they didn’t”.

He added: “I pay no attention to their fiscal reports. It has no relationship to what they actually do and here’s another example. I have long since moved on from being surprised by anything this government does relative to its self-stated policies. Their reports are nothing more than an approximation of what they do.

“There’s a legislative framework that ought to govern the relationship between their fiscal strategy and what actually happens. They create that strategy and do not follow it ever. Am I surprised? Never.”

However, the annual borrowing plan appears to give the Davis administration an ‘out’ in terms of its decision to tap the international bond and capital markets.

“The Government will monitor international capital market conditions to identify opportunities for liability management operations, including bond switches, buybacks and new issuances that improve the cost and risk profile of the external debt portfolio,” it said.

“Any new issuance will be contingent on market conditions, pricing levels and the Government’s overall liquidity position at the time of execution.”

One capital markets source, speaking on condition of anonymity, said of the latest offering: “It’s going to be interesting to see what interest rate they are able to strike in the marketplace.

“It’s not the perfect time to be going to the market now. It will be interesting to see what kind of rates they are able to lock in when they are wedded together given all the turmoil in the marketplace. I hope that, at the end of the day, they are able to term it out and end in a better position from an interest payables standpoint.”

The “turmoil” relates to the recent increase in yields on 10-year US Treasuries, the global benchmark for setting most bond rates and prices, which have risen by 1.1 percentage points this year amid growing market concerns over America’s fiscal and debt sustainability. French government bonds also came under pressure yesterday due to recent rioting and social unrest.

Rising yields, or interest rates, also push down bond prices. This has also affected The Bahamas’ bond valuations with one of the issues targeted for consolidation, paying a 6.95 percent coupon and due to mature in 2029, dropping below ‘par’ in around April 2026 and remaining there despite a recent mini-rally that may be linked to the refinancing.

The new bond’s launch, and offer to repurchase debt from existing investors, has occurred just days after Prime Minister Philip Davis KC unveiled the much-disputed $39.3m fiscal “surplus” for the 2025-2026 fiscal year. And he later confirmed the Government would soon be tapping the international bond markets in the debate on Grand Bahama Power Company’s refinancing.

“As part of the Government’s broader debt financing exercise for this fiscal year, the Ministry of Finance is preparing to approach the external bond market for a facility sized to meet both the central Government’s refinancing needs and these Grand Bahama obligations,” Mr Davis told Parliament last week.

“By consolidating them in that exercise, the Government expects to reduce annual debt service and to secure certainty about future interest payments…..The benefits to the two companies are considerable. 

“Once these facilities are retired, the Grand Bahama Energy Company [acquisition vehicle] will be left with only its working capital facility to service, which substantially reduces its debt burden and improves its financial flexibility,” the Prime Minister added.

“The Grand Bahama Power Company will shed significant debt service costs, and savings that would have otherwise gone to the banks can be directed instead to the maintenance, operational improvements and capital works on which the people of Freeport, Eight Mile Rock, West End and East Grand Bahama depend.”