The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The listing of around $3.5 billion in Government debt on the Bahamas International Securities Exchange (BISX) remains “definitely on the radar”, a top official adding that its recently-oversubscribed offering had broadened investor options in the capital markets.

John Rolle, the Ministry of Finance’s financial secretary, told Tribune Business that the $100 million, six-month short-term note offering had “deepened” the pool of government securities investments available to Bahamian investors.

While unable to give final figures for how much the issue, placed by CIBC FirstCaribbean’s Trinidad office, ultimately raised, multiple Bahamian institutional investors confirmed the offering had been oversubscribed.

One institution, speaking on condition of anonymity, told this newspaper that it received just over two-thirds, or 66 per cent, of the sum it had subscribed for.

With CIBC taking $45 million itself, this had left $55 million for other Bahamian institutional investors. Based on receiving just over two-thirds of its subscription, the institution estimated that around an extra $18 million had been raised above the target amount, placing the final total at somewhere between $115 million and $120 million.

Another investor, also speaking on condition of anonymity, said that while pension funds had received 100 per cent of their subscription amounts, it was the banks that had been cut.

Mr Rolle, meanwhile, said that while the $100 million offering was not launched with a BISX listing as its main focus, the Government remained alive to the benefits of doing this.

He told Tribune Business in a recent interview that while there were “no active plans” to list the Government’s multi-billion dollar Registered Stock (BGRS) and Treasury Bills on the exchange, it was a move the Government was “keeping very much in view”.

Mr Rolle acknowledged that listing the Government’s securities on BISX would aid its national debt management strategy, a crucial concept at a time when the Christie administration is constantly seeking lower borrowing (debt) costs.

“There’s a very acute awareness of the benefits that come from listing,” Mr Rolle told Tribune Business. “It’s fully appreciated what we would get.

“This one [the $100 million, six-month note offer] wasn’t done with that backdrop in mind. There aren’t any active [listing] plans afoot, but it’s something we’re keeping very much in view.”

There would be better price discovery and more transparency if the Government’s debt was listed/traded on BISX, with this also holding the potential for reducing its debt servicing costs.

“When we talk about Government’s debt management strategy, having instruments that are traded becomes important if the Government borrows at a fixed rate. It helps in terms of the market determining the pricing,” Mr Rolle told Tribune Business.

“It’s definitely something that’s on the radar for us to happen,” he added of listing all government debt securities with BISX. However, Mr Rolle indicated that this may not be a government priority, with Value-Added Tax (VAT) and other reforms occupying most of the Government’s and Ministry of Finance attention.

The listing of the Government’s debt securities has been a key objective of BISX from the day it began live trading over 13 years ago, on May 12, 2000.

The exchange’s initial business plan was heavily based on getting that business, and when those expectations failed to materialise, BISX’s financial projections were thrown badly out, leading to several years of financial strife.

Despite indications that the Government has been moving in the direction of listing its long-term debt on BISX, and the secondary listing of one international bond issue on the exchange under the last Ingraham administration, successive FNM and PLP administrations have failed to follow through on the final step.

Government debt securities are currently issued through the Central Bank of the Bahamas’ auction system, but their listing on BISX would create more transparency and better price discovery, facilitating their secondary trading in a regulated market.

And, as the largest securities issuer, the Government’s securities would also help create a yield curve for the pricing of all other debt securities in the Bahamian market.

Successfully enticing the Government to finally follow through would also likely more-than-double BISX’s current market capitalisation, which currently sits around $3.2 billion.

The Government’s total debt stood at $5.227 billion at end-June 2013, and of this sum, BGRS issues combined for $3.467 billion.

Thus the listing of government debt securities would serve to broaden and deepen the Bahamian capital markets, boosting liquidity and trading activity while also diversifying investor options.

Mr Rolle suggested the recent $100 million short-term note activity would help broaden Bahamian investor options, as this type of instrument had never been offered/placed before in the Bahamas.

“Short-term borrowing has traditionally been done by Treasury Bills, so it’s a good development for us with this kind of new instrument, short-term notes,” he told Tribune Business.

“We’re happy because the capital markets need to have to have more deepening in terms of the kind of instruments investors have available.

“We in the Bahamas, for more than a decade, have discussed increasing the mix of instruments out there from the Government side and injecting some some flow into the capital markets. It’s good to see that these types of instruments can be structured successfully.”

Tribune Business revealed in July that the 100 million “bridge financing” facility had an initial interest coupon some 160 basis points below the Prime lending rate, likely making it the lowest-yielding debt ever issued by the Government.

The six-month ‘revolving’ facility was intended to give the Government “extra space” before it moves into its long-term borrowing.

The ‘confidential investor term sheet’, obtained by Tribune Business, disclosed that CIBC FirstCaribbean International Bank was contracted to raise $100 million in fixed-rate notes.

The six-month, short-term facility can be rolled over (continued) at maturity depending on the Government’s decision, which would be based upon market demand for these debt securities.

Interest will be paid semi-annually in arrears, and the first $100 million worth of notes will carry a dividend coupon of just 3.15 per cent. That is some 160 basis points, or 1.6 percentage points, below the present commercial bank Prime lending rate of 4.75 per cent.

Mr Rolle told Tribune Business that the $100 million issue had given the Government a “broader” funding framework, and would help “even out” its borrowing cycle.

“It gives us an opportunity to even out our sources of funding,” he explained. “It’s a good way to have in place a broader framework for financing going forward, even when we do it in a short-term way.

“It’s not necessarily to cover our short-term financing needs but, during the fiscal cycle, there is a concentration of borrowing early on in the year; that’s the typical pattern.

“It does bridge that gap, and gives the Government flexibility to determine the timing of when it shifts to longer-term funding.”