The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s latest $42.5 million bond offering was expected to “at least 50-60 per cent oversubscribed”, its lead arranger told Tribune Business yesterday afternoon, just hours before its close.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that the second-ever Bahamas Government Stock (BGS) issue had been 80 per cent allocated on the offering’s first day (Tuesday).

The 48-hour issue, which closed yesterday evening, had drawn “much broader participation” from both Bahamian broker/dealers and the wider capital markets, which Mr Anderson attributed to greater awareness of the BGS offering and growing investor confidence in the security.

“We’re getting inundated with subscriptions, and expect it to be way oversubscribed - at least 50-60 per cent oversubscribed,” Mr Anderson told Tribune Business.

“There is greater awareness of the BGS security this time. We had it out in the market earlier, and the broker/dealers anticipated it coming to market.

“This time, we’ve seen a much broader participation from the broker/dealers and individuals coming to subscribe to it. Across the board, we’ve seen a higher take up than ever before.... It bodes well for future offerings.”

The $42.5 million offering follows the inaugural $75 million BGS issue, which was fully subscribed and placed in the Bahamian capital markets just before Christmas 2014.

Demand for the latest tranche has been even stronger, and Mr Anderson was yesterday uncertain whether the Government would accept any of the oversubscribed amount.

“We’ve seen a significant amount of subscriptions today [Wednesday], and had received 80 per cent of what was available by yesterday [Tuesday] evening,” Mr Anderson told Tribune Business.

“Today pushed it well over the amount offered, and from an allocation perspective we have to figure out how to allocate.”

The second BGS issue has been offered on a ‘first come, first served’ basis, but the RoyalFidelity chief said it would be tough to disappoint investors seeking their desired returns/yields from a diversified portfolio.

“The market environment is such that banks continue to have relatively low deposit rates, and people need higher yields,” Mr Anderson explained.

“It’s an excellent alternative investment for people, and the Government will have to assess this now and how much money they make available. It’s a really good indication of people’s appetite to participate.”

Mr Anderson said the BGS issues were a “precursor” to an auction-driven system for the allocation of government securities, where interest rates were determined by the Bahamian capital markets.

“The broker/dealers come in and buy bonds themselves. As they list them on the Bahamas International Securities Exchange (BISX), and they start to trade, we will see what interest rate people accept, and this will move the rate up or down,” Mr Anderson told Tribune Business.

This, he added, would help develop a yield curve for the pricing/supply of government securities. Mr Anderson acknowledged, though, that in the Bahamian capital markets, investors tended to ‘buy and hold’ - rather than trade - securities.

The $42.5 million offering is 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 is 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.

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.

The $42.5 million issue is part of $200 million worth of BGS that the Government is seeking to place with Bahamian investors before the 2014-2015 fiscal year-end on June 30.

Two further issues, one at the end of March and the other at the end of June 2015, each worth $30 million, are scheduled to follow.