The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has restructured the timetable for issuing $200 million worth of new securities to Bahamian investors, after deciding to take $20 million in extra subscriptions to the latest tranche.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, said the Government had decided to take “close” to the full $63-$64 million raised from last week’s Bahamas Government Stock (BGS) issue.

That sum is 50 per cent higher than the $42.5 million that the Government had sought to place, but Mr Anderson told Tribune Business it had elected to take a total $62.5 million.

The latter figure is still 47 per cent higher than the total $42.5 million subscription targeted by RoyalFidelity as lead arranger, and the issue’s success has forced the Government to modify its BGS issuance plans.

January’s offering, added to the $75 million raised in December’s 2014 inaugural BGS issue, takes the combined proceeds raised to-date to $145 million.

The Government’s BGS programme for the 2014-2015 fiscal year seeks to raise a total $200 million, and the original plan was to complete this via two further offerings - in March and June - that would each generate $30 million.

But, with the BGS proceeds already beating projections, Mr Anderson said the Government and RoyalFidelity had decided to scrap the planned March offering and instead hold one more in June.

That issue will seek to raise $47.5 million in combined three, five and seven-year BGS paper debt (government bonds).

“We had to get confirmation for what the Government wants to do,” Mr Anderson told Tribune Business of the delay last week in informing investors of what they would receive in January’s BGS issue.

“They are willing to take some additional subscriptions on the three, five and seven-year securities..... The Government is interested in taking some additional subscriptions, and at this stage they’re looking at taking $62.5 million - an almost 50 per cent increase over what was offered.

“They’re not going to take the full amount, but close to it. It’s a very good situation that many people came in, and the Government is willing to take the funds,

“It’s always good to be oversubscribed. I hate the idea of not raising what we set out to do. We’ve never gone out for fixed income securities and not made it.”

Mr Anderson expressed hope that RoyalFidelity would “finalise” everything associated with January’s BGS issue by today.

The $42.5 million offering was divided into ‘three series, each with its own interest rate and maturity, in a bid to satisfy the needs and risk appetites of different investors.

It was, in its initial form, comprised of a $15 million tranche bearing a 4 per cent interest rate, and three-year principal maturity; another $15 million ‘slice’ carrying a 4.25 per cent interest coupon and five-year principal maturity; and $12.5 million priced at 4.5 per cent interest and a seven-year principal maturity timeframe.

Explaining the adjusted BGS schedule for the next six months, the RoyalFidelity chief told Tribune Business: “We’re not going to have the March issue. We’ll instead focus on the June offering.

“We’re now going to end up doing $47.5 million for June. We’ll stick to the $200 million offering through to June, but are going to skip March and take close to the full amount for this offering, and put the rest out for June.”

Mr Anderson said the June BGS issue, originally planned for near the end of that month, might be moved up to the early or mid-part.

He added that the BGS issues, and their planned listing and trading on the Bahamas International Securities Exchange (BISX), were ultimately designed to let the market determine the price (interest rate) of government debt.

“The next step will be to list the securities, start trading them and see what rate people are willing to pay for the bonds, and whether they’re willing to pay a premium or not,” Mr Anderson told Tribune Business.

This, in turn, would create a yield curve and help “to determine what’s the appropriate rate for those securities going forward”.

“We want to see if we can understand what the true market rate is, as opposed to setting the rate and hoping people buy them,” Mr Anderson added.

The BGS debt is being placed through Bahamian broker/dealers rather than the Central Bank of the Bahamas. The Bahamas Central Securities Depository (BCSD) has also replaced the Central Bank as the custodian who holds the debt.

The BGS debt is thus effectively “decertified”. They are not Bahamas Government Registered Stock (BGRS), as investors will no longer need certificates of registration to prove their ownership. This function will now be performed electronically by BISX and the Securities Depository.

And, when it comes to the BGS securities, owners will no longer have to go through the Central Bank, which has to verify certificates of registration, to sell them.

This function will be performed by broker/dealers and BISX.