The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s financial advisers believe its new Treasury Note debt security has enjoyed “a successful start”, despite the first-ever offering raising just two-thirds of the $150 million target.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that the $100 million raised from investors still exceeded the initial $75 million goal set for the inaugural Treasury Note issue.

Explaining that the target was doubled to accommodate anticipated extra demand, Mr Anderson said the $100 million raised still represented “a huge amount” for the Bahamian capital markets.

He suggested that “timing issues” had prevented some institutional investors from participating in last week’s offering, and said it was possible the total amount raised could still rise due to reports that there was “a piece missing”.

While RoyalFidelity was still trying to confirm reports that further monies had yet to come in, Mr Anderson told Tribune Business: “At this stage, we have had $100 million come in out of the $150 million. That isn’t bad.

“We were going out on a $250 million plan for the 2015-2016 fiscal year, and initially we were looking at raising in the region of $75 million this launch. But we thought there was additional demand, and so decided to put it up to $150 million.”

Mr Anderson said RoyalFidelity was not “too unhappy with the result at this stage”, and branded last week’s first-ever Treasury Note issue “a successful start”.

“Even though the amount we initially put out for was not fully subscribed, we’re happy with the successful launch of the programme,” he said.

“If we end up with $100 million out of $150 million, that’s a good start. We’re very happy with the pick-up given the introduction of a new product into the market.

“People forget that the top offering for Bahamas Government Registered Stock (BGRS) used to be $50-$100 million. Really large sums are getting raised in the market now compared to what used to happen, even though we’re short of the amount we went out for.”

The Treasury Notes are ultimately intended to replace the Treasury Bill as the Government’s main short-term debt security and source of liquidity/cash.

The first-ever offering was broken down into three tranches, being evenly split between 30-day, 90-day and 180-day Treasury Notes. Each tranche offered $50 million.

Mr Anderson did not know how the $100 million raised broke down between the three tranches, although he believed “at least half” had subscribed for the 90-day notes.

With 40 per cent of the 2015-2016 fiscal year’s $250 million target now raised, Mr Anderson said the Government would have to decide whether the Treasury Notes not subscribed for in the first offering will be made available to investors via future issues later in the year.

“As we roll out this programme to raise $250 million, we have this tentative schedule so people are able to plan for it,” the RoyalFidelity chief told Tribune Business.

“We’ll sit down together with the Government and plan out the offerings, and see what are the best dates and amounts as we go forward.”

Mr Anderson said similar discussions would be held with other Bahamian broker/dealers and the commercial banks. Both institutional groups provide the only access route into Treasury Bill offerings for individual investors.

Despite RoyalFidelity being “out in the market” for weeks advising on when the first Treasury Note issue would occur, Mr Anderson said “timing issues” had prevented some institutions from participating.

Implying that this was a major factor in why the $150 million target was not hit, he added that some banks had been unable to ‘break deposits’ and take other measures to ensure they had investment-ready cash in time.

“Somehow the timing did not work for the market,” Mr Anderson told Tribune Business. “Some banks were unable to participate, whether they wanted to or not.

“Although we got good interest, it’s very hard to know what will happen with a new product. We’ll sit down with the banks again, and understand from their perspective their timing issues and how we can fit in with them.”

Mr Anderson said he was encouraged by 10 individual investors electing to participate in the first Treasury Note offering via RoyalFidelity alone, as this indicated persons were looking beyond bank deposits for attractive, low-risk returns.

“It will take a little time for people to recognise this as normal,” he added. “It takes a while before they are comfortable, but I believe we’ll start to see more and more individuals pick it up as we go forward, which is where I think the market is for the Government.”

Apart from broadening investor access to government debt securities beyond government institutions, the Treasury Notes are also designed to provide the market with alternatives to bank deposits via their low-risk, higher yield characteristics.

For the Government, together with their longer-term Bahamas Government Stock (BGS) counterparts, the Notes represent a departure from the previous auction-based strategy to one where its debt its allocated using market mechanisms.

This ties directly to the Government’s desire for more proactive management of its debt stock, with the ultimate goal being to reduce its borrowing (interest) costs and the burden this creates for the Bahamian taxpayer.