By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
THE proposed $150 million Hurricane Reconstruction Bond is likely to be “multi-tiered” to appeal to different investor groupings, the Chamber’s chairman said yesterday, expressing concern over whether the target sum could be raised in one shot.
Gowon Bowe told Tribune Business that the bond issue was likely to be divided into tranches, each with its own interest rate coupon and maturity date, in a bid to satisfy the different requirements of commercial banks and insurance companies.
He explained that while the banks would likely seek a shorter maturity (the time that elapses until their principal is returned), Bahamian insurance companies would want a longer period to better match any investment with long-term policy liabilities.
“There’s been a term sheet floated among the financial institutions, and they’re now in the process of getting feedback on it,” Mr Bowe told Tribune Business of the Government’s progress in structuring the bond with private sector assistance.
“That is a balancing act, with some institutions concerned on liquidity and capital requirements, and ensuring they have cash on hand.”
The Chamber chairman explained that the commercial banks would likely look for short-term debt, as opposed to the insurance industry preference for a long term investment, thereby requiring that the Hurricane Restoration Bond be broken up into tranches catering to each.
Mr Bowe told Tribune Business that the bond will likely have “multiple tiers, at different rates and terms, which effectively cater to different industries and maximise the take-up”.
Splitting government debt securities offerings into different slices, each with their own interest yields and maturities, is nothing new for the Bahamian capital markets.
RoyalFidelity Merchant Bank & Trust did this frequently when it was placing Bahamas Government Stock (BGS) bond issues for the Christie administration in 2014 and 2015.
Tribune Business previously revealed that the Government’s initial proposal was for a bond that would carry a 10-year maturity, and pay investors an interest coupon of between 1.5-3 per cent.
However, banking industry sources felt the interest rate was too low and unattractive. It was far below what is offered on typical Bahamas Government Registered Stock (BGRS) issues, and a $50 million bond, carrying a 5.4 per cent interest coupon and 20-year maturity, was fully placed by the Central Bank just before Matthew’s arrival.
Tribune Business was yesterday told by banking sources that the industry and the Government were nearing agreement over the Hurricane Restoration Bond, with the banks ready to commit $80-$90 million provided they received the required interest yield and maturity.
This newspaper was told that the banks are seeking a 4-4.5 per cent yield, with maturity of between three to five, terms significantly different from those initially proposed by the Christie administration.
Mr Bowe, meanwhile, suggested the Government may be trying to bite off more than it can chew by seeking to raise the $150 million in one go.
“Trying to raise $150 million all at once might be a giant effort, and very difficult,” he told Tribune Business.
Given the relatively small size of the Bahamian capital markets, and significant exposure that many of the commercial banks already have to the Government, he suggested a better option would be to match investor ‘financing calls’ with drawdown and expenditure demands.
“It’s still being discussed among the clearing banks,” Mr Bowe added of the bond. “There are still discussions over the rate, timeframe and how it’s viewed by the Central Bank as it relates to capital adequacy and liquidity requirements. All of these elements have not been settled as far as I’m aware.”
Edison Sumner, the Chamber’s chief executive, confirmed that talks between the Ministry of Finance and the commercial banks, especially the Canadian-owned ones, were ongoing.
“We do support the idea of having these funds made available,” he said of the bond, “but our only concern is how it is being structured, and hoping the rates, maturity and yield are attractive enough for the banks and others to want to invest in it.”
Mr Sumner said the Chamber was equally concerned that the bond’s terms were good enough to warrant the Government issuing it.
He added: “We expect in the not too distant future for the Government to finalise the draft and say they want to float the bond, and then we will see active participation from the investment community to buy into it.”
Mr Sumner confirmed that a portion of the $150 million raised was intended for small and medium-sized enterprises (SMEs), who might otherwise be unable to access the capital necessary to finance post-Matthew recovery, and would have to close their doors otherwise.
However, he conceded that the final amount destined for the private sector, and Bahamian economic recovery, had yet to be determined.
Comments
banker 7 years, 5 months ago
There is no way that I or any of my clients would purchase these bonds, unless they had a "put option" attached that forces the issuer to pay back the principal on demand at any time. If we had a mature securities market with derivatives, I would gladly buy all the Credit Default Swaps that I could lay my hands on. The exponential rate of government spending and government debt is unsustainable for even the next three years. I am convinced that it is a matter of time before the government defaults and has to re-structure some bond obligations.
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