THE Bahamas Development Bank’s (BDB) ‘sinking fund’ covered just one-third of its $46 million outstanding bond debt at year-end 2016, with only 28.4 per cent of its loans ‘performing’.
The BDB’s 2016 financial statements, tabled in the House of Assembly in Wednesday by the Prime Minister, reveal the parlous state of another state-owned enterprise (SOE) that has racked up more than $60 million in losses for the Bahamian taxpayer during its 43-year existence.
The accounts, audited by Grant Thornton (Bahamas), show that the BDB had a $31.31 million solvency deficiency at end-2016 with its continued existence in question without further government (Bahamian taxpayer) financial support.
Of particular concern is the fact that its ‘sinking fund’, which was created to set aside money to repay the BDB’s two bond holders, is substantially under-funded compared to the principal owed.
The ‘fund’ contained just $15.608 million worth of assets, mainly Bank of the Bahamas (BOB) deposits, at end-2016 compared to the $46 million principal owed to the National Insurance Board (NIB) and Central Bank of the Bahamas.
NIB, which holds $42 million worth of BDB bonds, is by far its largest creditor. The financial statements note that NIB was paid the $3 million that came due during 2017, but there is a $30.028 million deficiency between the principal owed and the ‘sinking fund’s’ assets.
Unable to service its obligations itself, the BDB has become increasingly reliant on the Government (taxpayer) to make principal and interest payments on the bonds - and $3.674 million in other long-term loans - on its behalf.
The Government made $1.898 million in such payments during the 2016 calendar year, helping to increase the total sum owed by the BDB to the Public Treasury to $21.453 million at year-end.
The ‘sinking fund’ deficiency, coupled with the sum owed to the Government, explains why the BDB’s chairman, Lynden Nairn, told Tribune Business back in October that “everything turns” on its ability to restructure $64 million in long-term debts.
He added that negotiations with NIB and the Central Bank over the remaining $43 million bonds were geared towards giving the BDB “breathing room”, which likely involves extending the maturity/principal repayment date (a debt rollover) and lowering the interest rate coupon.
Emphasising that the BDB was not asking institutional investors to write-off their investments, Mr Nairn said then that the Board’s recapitalisation plans also rely on the Government agreeing to convert its $21 million debt into a larger equity position in the bank.
The BDB’s room for manoeuvre, though, is restricted by the fact that 71.6 per cent of its gross loan book was either non-performing, or represented ‘extraordinary advances’ and credit to employees, at year-end 2016.
Some $22.731 million worth of loans were classified as non-performing, meaning they were at least 90 days past due, while just $9.935 million worth of credit was current. Heavily indebted and struggling to service its obligations, and with the majority of borrowers delinquent, the BDB has little funding through which to extend credit to new entrepreneurs and stimulate economic growth through the small and medium-sized enterprise (SME) sector.
BDB’s accounts showed that one loan, “due from family members of key management personnel” and worth $73,197, was non-performing at year-end 2016. It was said to be fully secured, with an interest rate of 10.5 per cent.
Total loan loss provisions stood at $13.8 million at year-end 2016, reducing the size of BDB’s net outstanding loan portfolio to just $21.162 million.
For the 12 months to December 31, 2016, BDB’s total comprehensive loss fell by 42 per cent to $1.878 million from $3.23 million in 2015, due largely to a $1.585 million ‘swing’ on loan recoveries.
The Minnis administration has set 2020 as a deadline for the BDB to ‘stand on its own feet’, whereby it will cease paying the $3 million annual interest payments to NIB and the Central Bank on its behalf.
Asked previously whether the BDB could achieve the Deputy Prime Minister’s three-year ‘self-sufficiency’ target, Mr Nairn replied: “We think that it’s possible.
“Frankly, Neil, with a lot of the plans we have, everything turns on our ability to restructure our long-term debt. That’s the major thing that needs to happen, and if that doesn’t happen, and we can’t restructure, then the answer is that’s not achievable. If we are able to restructure, there’s a very good possibility we will be able to do it.”