The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

While the capital markets “absolutely” need a credit rating agency, the Bahamas International Securities Exchange’s (BISX) chief executive yesterday said its absence would not be “a total stumbling block” to his commercial paper ambitions.

Keith Davies told Tribune Business his plan would effectively ‘get around’ the absence of a Bahamian credit rating agency by targeting only companies that were able to produce audited financial statements for investor scrutiny.

Explaining how his proposed commercial paper market would work, Mr Davies said its initial launch would target the Government - widely perceived as the Bahamas’ safest issuer due to its sheer size.

The next phase, he added, would involve the companies publicly listed on BISX, with the third - and final - level taking commercial paper to long-standing companies that were willing to provide audited financials and other material details to potential investors.

Mr Davies was responding after a Tribune Business reader suggested that his plans to launch a commercial paper market would “go over like a lead balloon” in the absence of a local credit rating agency to assess the issuer’s ability to repay investors.

“This will go over like a lead balloon. How can you have a commercial paper market, when there is no domestic credit rating agency, nor is there a commercial credit rating agency,” the reader, called ‘Banker’, said in a posting on tribune242.com

“We don’t have a Dun & Bradstreet or a similar organisation to rate the risk of the paper...... This is a half-baked idea for a country that is not ready for it.”

Credit rating agencies are seen as providing a vital role in capital markets worldwide, as they rate the ‘creditworthiness’ of all securities issuers for the investing public.

These agencies, the best-known being Standard & Poor’s, Moody’s and Fitch (the former two rate the Bahamas government), assess the financial health of each issuer largely from the perspective of investors being able to receive their due interest and principal payments.

Mr Davies acknowledged that there had been previous discussions, at the Government and Securities Commission levels, about the need for a local credit rating agency.

Unsure how far these talks had progressed, the BISX chief executive said the question raised by ‘Banker’ was “an excellent point”.

Explaining how he planned to proceed in the absence of a credit rating agency, Mr Davies told Tribune Business: “The commercial paper avenue we are seeking to launch starts with the Government, which arguably provides the highest level of safety and security from an issuer standpoint.

“The second step would be commercial paper from our listed issuers on BISX. Granted, there’s no credit rating agency, but public company disclosure requirements mean there’s material information in the public domain for people to make informed decisions.”

And he added: “The third level would be seeking to have retail institutions, which have some operating history and some level of audited financials, who’d be willing to put themselves out there and have sophisticated investors judge them. That’s as far as we want to go.”

Mr Davies is this targeting his proposed commercial paper market only at entities capable of a high level of disclosure and transparency.

Apart from creating a Bahamian credit rating agency, both BISX and other capital markets institutions have, in the past, explored allowing the Caribbean regional credit rating agency, CariCRIS, perform such services in this market.

“Would a credit rating agency be wanted and useful in our market? Absolutely yes,” Mr Davies told Tribune Business. “CariCRIS was one of the regional agencies we looked at.

“This is something we want to have as a jurisdiction, and I don’t know where we are in terms of having one. Definitely, it’s something that’s needed.”

A Bahamian commercial paper market could represent a further evolution of this nation’s capital markets, broadening and deepening them, while also providing a significant fillip to capital-starved businesses.

It is totally different from fixed income securities, such as corporate bonds and preference shares, being akin to trade financing - a mechanism for Bahamian companies to issue short-term debt securities to buyers as a way of overcoming temporary cash flow issues.

Effectively, BISX would be facilitating an alternative to bank overdrafts, bridging loans and letters of credit (LOC) for creditworthy companies, who could demonstrate that they had assets and incoming cash flow to repay their financiers.