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Bec's $250m Bond Deferred To Stop Reform 'Handicap'

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Kevin Basden

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A $250 million bond to refinance the Bahamas Electricity Corporation (BEC) has been postponed to avoid “handicapping” the energy sector reform process, Tribune Business can reveal.

Kevin Basden, BEC’s general manager, told Tribune Business that the bond issue - for which a government guarantee was approved back in January - had not gone to market because the Government wanted the Corporation’s potential new operator/operators to make the final decision on this.

Explaining the two original loans that the bond sought to replace had been extended until this November, Mr Basden said: “The debt has not been refinanced. We got an extension on the loan.

“The loan has been extended into November, and we are presently in discussions with the banks on that matter. We are in discussions with the banks and the Ministry of Finance on that issue.”

Explaining why the BEC bond issue had been deferred, Mr Basden told Tribune Business: “Energy sector reform is now taking place.

“Typically, what happens when such an initiative takes place, the new entity coming in, you want them to make major decisions as opposed to handicapping them.”

The Government unveiled the planned $250 private placement bond in January to refinance the troubled Corporation. The US dollar-denominated financing, which was to be raised via a process managed by CIBC FirstCaribbean, was intended to replace short-term bank debt with cheaper long-term financing.

The bond, which was designed to have a 15-20-year maturity, depending on investor appetite, was intended to refinance and pay out two existing loans held by BEC.

The first, a $211 million syndicated bank loan, was due to mature in October 2012, while another $35 million loan - required to finance BEC’s fuel purchases from Shell Western - was also to be paid out.

CIBC FirstCaribbean was the lead banker on the syndicated loan, holding $131.851 million or 62.49 per cent, according to BEC’s 2010 accounts.

Other participants were Scotiabank (Bahamas) with $52.6785 million or 26.96 per cent; Royal Bank of Canada with $16.274 million (7.93 per cent); and Bank of the Bahamas International $9.75 million (4.62 per cent).

Informed sources have told Tribune Business that how BEC’s existing debt pile (long-term borrowings stood at $224.653 million at end-September 2010) is dealt with in the energy sector reform Request for Proposal (RFP) has attracted attention from prospective bidders.

This newspaper understands that the RFP proposes to divide BEC’s debt between its transmission/distribution and generation businesses if, and when, the Corporation is split into two as currently proposed.

Determining what debt attaches to which part of BEC is a difficult enough task in and of itself, but sources told this newspaper that leaving any private sector entity to refinance this would likely be more costly in terms of interest payments, as no one would be able to match the rates a government could attract.

This, in turn, might have implications for energy prices in a reformed energy sector.
 As for the reform process, the nine groups who submitted bids in the technical round should know by today whether they have been accepted for entrance into the so-called ‘pricing round’.

That stage of the process will run into mid-November, a slight departure from the initial schedule, which envisaged all pricing bids being received by end-October, with the winner(s) determined two days later.

The Government is aiming to finalise negotiations with the winning bid(s) by mid-December, with energy sector legislation, regulations and policy reformed by March 2014. The winning bidder(s) would then take over their respective parts of BEC by May 1 next year.

The Government is currently proposing to split BEC into two between its generation and transmission/distribution businesses, although it is possible they could stay together and be handed over to just one bidder.

When asked how BEC staff were dealing with the prospect of far-reaching reform, Mr Basden said: “I think you have the normal reaction.

“Human nature is normal. Some persons are of the view that they’re going to do their best given what is taking place, but with others there’s a degree of uncertainty. So it’s a normal reaction.”

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