The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The first Bahamas Government Stock (BGS) issue of the 2015-2016 fiscal year was likely to close 20 per cent below target, the administration’s financial advisers disclosed yesterday.

Speaking to Tribune Business just hours before the BGS offering closed at 5pm yesterday, Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, said it was likely to raise between $75-$80 million.

Arguing that this figure still represented a successful offering, Mr Anderson said he was still waiting to see whether several large institutional investors came in during the final three hours.

He added that RoyalFidelity was now focused on “getting out to the market earlier” so investors were given more notice of upcoming BGS issues, thereby enabling them to free-up deposits and other assets for investment.

“At this stage we reckon we’ll get somewhere between $75-$80 million,” Mr Anderson told Tribune Business in relation to the $100 million BGS issue. “We don’t know what else is going to come in at the end of the day.”

The RoyalFidelity chief said he was still waiting to see what several banks and other large institutional investors, who had yet to come in, would do during the final hours of Wednesday, having spoken to several earlier in the day.

He added that the Bahamian capital markets were dependent on major institutional investors, such as banks, insurance companies and the National Insurance Board (NIB), to ensure that offerings of such a scale were fully subscribed.

“Frankly, on deals like this, we’re ultimately reliant on large investors, the banks and institutions, and unless they all come in, you end up being short,” Mr Anderson told Tribune Business.

“All of these [BGS] are kind of successful offerings in a way. These are new securities, and it’s very difficult to bring them to market and know how well they will work.”

The RoyalFidelity president said that based on how the last BGS offering, released in June 2015, was heavily oversubscribed, it was anticipated that this week’s $100 million issue would attract a high level of investor interest and participation.

He added that RoyalFidelity was now assessing whether to start marketing BGS issues earlier, giving investors more time to plan and line up funds, especially if they needed to ‘break’ three or six-month bank deposits.

“People can’t always make available the money they want at the time they need it,” Mr Anderson said. “Perhaps we’ll get out to market earlier so that people can plan better for it.

“We were out in the market a week before this one, advising on it, but for people with money on fixed deposit for three to six-months, they may not get it to mature in time.

“As we go forward, we’ll have the market prepared better for these offerings, and strongly increase investor participation.”

Should this BGS issue come in at the projected $80 million, that would still represent around 40 per cent of the total $200 million that the Government wants to raise via this bond instrument during the 2015-2016 fiscal year.

This week’s $100 million issue was split into three tranches.

• $30 million in three-year BGS bonds with an interest coupon of 3.5 per cent

• $35 million in five-year BGS bonds with a 3.875 per cent interest coupon

• $35 million in seven-year BGS bonds with an interest coupon of 4.25 per cent.

The BGS securities will be allotted on a ‘first come, first served basis’, and unless investors indicate otherwise, they will be placed into the nearest maturity date available should their preferred tranche already be fully subscribed.

The Christie administration’s fiscal consolidation strategy relies, in part, on a more proactive debt management strategy and the ability to find ways to reduce debt servicing/borrowing costs - something the 2015-2016 BGS programme is aiming to achieve.

Mr Anderson previously said the interest coupons attached to the three tranches in this week’s offering were all lower than the rates offered last year.

He added that the BGS securities maturing in three years would carry a 3.5 per cent coupon, compared to 4 per cent last year. The five-year tranche carries a 3.875 per cent rate, compared to 4.25 per cent from a year ago; and the BGS securities with a seven-year maturity have a 4.25 per cent coupon as opposed to 4.5 per cent.

Once placed, this week’s BGS issue will also be listed on the Bahamas International Securities Exchange (BISX), following the inaugural two offerings that are already there. The third BGS issue from 2014-2015 is currently making its way through the listing process.