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No Bpl Bond Refinance If Energy Costs Increase

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

BAHAMAS Power & Light’s (BPL) multi-million dollar liabilities will not be refinanced with a Rate Reduction Bond (RRB) if it increases electricity costs for the Bahamian people.

Desmond Bannister, minister of works, told Tribune Business last night that the utility monopoly’s Board was assessing numerous options for raising the capital to improve BPL’s outdated generation capacity and infrastructure, an RRB being one of them.

And, despite this newspaper’s financial contacts suggesting local investment advisers are lukewarm - at best - over providing BPL with the required financing, Mr Bannister said “huge, highly respected institutions” were making unsolicited approaches to the Government and Board every day.

“We have very large, highly-recognised institutions that are approaching us every single day about this issue and seeking to be involved,” the Minister of Works, who has ministerial responsibility for BPL, told Tribune Business.

“They are huge institutions, local and international, that are approaching us. We are not even approaching them. They are coming to us. Certainly, the funding is there, and from everything I’ve seen the people approaching me are interested in doing so.”

Mr Bannister’s comments came as BPL’s newly-appointed acting chief executive, Carson Harreld, confirmed that the energy monopoly must raise funding for its $110 million capital expenditure budget this year.

“We have in the budget for this year a lot of improvements that should help us reduce the outages we’ve had,” he said at a press conference. “A lot of our equipment is older and needs to be either refurbished or replaced.

“The capital budget this year is about $110 million. Obviously we’re going to have to have some financing if that’s going to happen. We’re working with the Board for their directions, and we’re trying to raise the money to make improvements that everyone in the Bahamas wants.

“We’ve been considering a bridge loan that would get us through this year, and [will] hopefully issue some bonds - longer term bonds - which should allow us to make a lot of improvements.”

 Mr Bannister confirmed that a Rate Reduction Bond (RRB), which was legislated by the former Christie administration, was one possible solution for refinancing BPL’s existing liabilities and providing it with essential working capital.

“That is one option. There are some other options on the table, but that is one of them,” the Minister told Tribune Business.

“The whole issue for us, the bottom line, is going to be the cost of electricity to Bahamian consumers. If the RRB does not offer that, we will follow another course, ensuring whatever we do is going to lead to a reduction in the cost of electricity. That is critical.”

Mr Bannister during his Budget presentation revealed that BPL was seeking a $135 million ‘bridge loan’ from a combination of J P Morgan and CIBC FirstCaribbean - likely the financing referred to by Mr Harreld.

However, the Minister confirmed that this loan had yet to be finalised. “We haven’t placed anything yet,” he said. “We are looking at things, and there are negotiations going on now.”

The RRB was the Christie administration’s preferred route for refinancing BPL and its Bahamas Electricity Corporation (BEC) parent, taking care of total liabilities estimated at $600-$650 million.

The bond, which would be issued by a special purpose vehicle (SPV), would take care of some $240-$250 million in legacy bank debt; around $90-$100 million in existing bonds; and BEC’s legacy environmental liabilities and pension fund deficit.

The SPV would also have kept the debt off the Government’s balance sheet, and the former administration passed legislation in the House of Assembly to give it effect.

However, the Christie government never moved on placing the RRB. Payments to bond holders will be financed by a portion of the bill paid by BPL’s 108,000 consumers, and this potentially threatens to raise electricity costs - as alluded to by Mr Bannister.

The thought of increased costs so close to a general election likely gave the Christie administration pause for thought, but the failure to proceed left BPL and its manager, PowerSecure, cash-strapped and unable to raise the financing necessary to overhaul the utility’s infrastructure, and improve its efficiency and financial/operational performance.

This exacerbated the former government’s refusal to approve an increase in BPL’s ‘base’ tariff, which would have increased its cash flow and given it funding for maintenance work.

Tribune Business contacted Mr Bannister after learning that BPL had been pitching, and sending out ‘feelers’, to Bahamas-based investment houses and money managers over its capital-raising intentions and options.

This newspaper suggested that the BPL Board’s finance committee, headed by executive director, Deepak Bhatnagar and former BEC general manager, Kevin Basden, had ‘floated’ options such as a $100 million RRB, $50 million bond and other debt financing arrangements that could total $100 million.

The effort is designed to gauge interest in participating in, and helping to structure, BPL’s proposed capital raising. However, multiple sources said interest was likely to be cool until the current dispute between the Board and PowerSecure was resolved, and BPL showed it was making progress in its turnaround.

One source, speaking on condition of anonymity, said the BPL Board appeared interested in placing the RRB’s $100 million ‘Bahamian piece’ before the international component, but it was difficult to determine which direction they will ultimately take.

‘“I don’t know where that’s going to go,” the source said. “There’s clearly issues between BPL and PowerSecure. They’re interested in raising capital, have an urgent need for capital, but I don’t know if banks and investors are going to be interested until this mess is sorted out. It can’t be done when this whole mess is up in the air.”

They added that BPL likely needed between $100-$150 million in medium-term financing, and said: “They seem very keen to move forward, but how it works out, I don’t know.

“This is not the time to be going to market. You’re looking for confidence, that progress in heading towards a solution is being made, and that everybody is going to get their money back.”

Another finance source, also speaking on condition of anonymity, said: “Why do they think they can get this done when they haven’t fixed their core problem of generation? You have to fix the problems before you get the capital.”

Comments

Well_mudda_take_sic 1 year, 11 months ago

Minnis needs to give Deepak Bhatnagar his walking papers before its too late.

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DDK 1 year, 11 months ago

This report is so convoluted it's hard too follow. Perhaps that is the intent. An Electrical Rate Reduction Bond bill was tabled by Brave Davis in November, 2015. I do not believe the last administration placed the bond. Is this an identical proposal?

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