WORKS Minister Desmond Bannister in the House of Assembly.
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Bahamas Power & Light (BPL) has cut the target for its upcoming bond issue to $580m as it places reliance on “selling our turnaround strategy” to obtain the credit rating it needs.
Desmond Bannister, minister of works, confirmed to Tribune Business that the sum sought has been reduced by just over ten percent from the original $650m because BPL has already received some of the necessary financing through the Ministry of Finance for post-Dorian restoration projects in Abaco.
“That’s the most likely figure right now,” Mr Bannister said of the $580m. “Because of the money we’ve injected through the Ministry of Finance and a number of projects in Abaco, the amount we need is not as high as initially projected.”
The $70m drop in BPL’s borrowing requirement comes as the state-owned utility monopoly still awaits a credit rating for its so-called Rate Reduction Bond (RRB) issue from the likes of Fitch, Standard & Poor’s (S&P) and Moody’s.
The rating is vital to pricing the bond, meaning it is key to determining how much BPL’s business and residential customers will pay to service the debt and repay the investors and buy it. With BPL announcing last week that it hopes to place the issue by mid-February, an assessment of the bond’s creditworthiness is needed imminently to meet this timeline.
However, the evaluation is taking place against the impact of Hurricane Dorian on the Bahamian economy and the Government’s financial position. With a $677.5m now deficit projected for 2019-2020, along with a $9.5bn national debt in five years’ time, the weakened sovereign creditworthiness has already impacted the credit ratings of other Bahamian entities.
Fitch recently slashed the Nassau Airport Development Company’s (NAD) outlook from ‘stable’ to ‘negative’, implying that a rating downgrade is possible in the next 12-18 months, although it kept the Lynden Pindling International Airport (LPIA) operator’s credit rating the same.
Fitch justified its move due to the deterioration in the Government’s financial position post-Dorian. Given that it typically rates infrastructure-related projects, entities and their debt offerings, it is highly likely that BPL has sought a rating from it and will have to overcome the same sovereign obstacles that faced NAD.
Dr Donovan Moxey, BPL’s chairman, told Tribune Business that he was optimistic that the strength of BPL’s recovery plans would more than offset concerns about The Bahamas’ sovereign creditworthiness in rating the RRB issue, and therefore the latter would have no impact on the ultimate outcome.
“All I can tell you is we’ve had very positive conversations with our financial advisers, and the meetings with the rating agencies went very positively,” Dr Moxey said. “Our job is to sell the turnaround strategy for the company to the rating agencies.
“We feel optimistic. We have no way of knowing, but we’re very optimistic we’ve put our best foot forward. We believe we have a very good strategy, and we’re very optimistic investors will buy into it.”
It is unclear whether the reduced sum BPL is seeking will have any impact on what businesses and households will have to pay in terms of the extra National Utility Investment Bond fee that will be added to their bills. Present estimates suggest this fee will be equivalent to 15 percent of consumers’ current consumption, but the credit rating is likely to be the bigger influence.
Mr Bannister added: “One of the real challenges is that The Bahamas is not a typical onshore American entity. The way risk is assessed on relation to a small sovereign country like The Bahamas is somewhat different.
“We are anticipating that we need to be able to have funds in place to do what we need to do change this paradigm we’ve lived through unhappily for so long.”
Dr Moxey, meanwhile, told the Bahamas Business Outlook conference that BPL expected to have power restored to the whole of Abaco by the end of March. He added that while utility-scale solar and other renewable generation “is going to come, it’s going to happen”, grid stability needed to vastly improve to accommodate its inclusion in The Bahamas’ generation mix.
Comments
birdiestrachan 4 years, 3 months ago
Moxey also said they are selling two stations to Shell. How come you are bot reporting that? Neil I trust you and I expect you to investigate this matter.
Well_mudda_take_sic 4 years, 3 months ago
Investors in the proposed Rate Increase Bonds fully deserve the losses that are going to come their way just as surely as day follows night. The decades of waste, fraud and corruption at BPL will continue as long as it remains owned by one corrupt government after another, whether PLP or FNM. The proceeds from the issue of the Rate Reduction Bonds would all too quickly be frittered away by the current corrupt Minnis-led FNM government, especially if the likes of Bannister, Moxey, Heastie and Maynard remain in any way involved with BPL. That's the harsh reality the credit rating agencies must accept, and the reason why the Rate Increase Bonds will carry outrageously high interest rates that cannot possibly be sustained (serviced) by BPL's dwindling customer base. Continuing business failures and rising unemployment in our country is attributable the corrupt Minnis-led FNM government's creation of the worst economic environment our country has ever experienced, even well before the impact of Dorian back on Sept. 1, 2019.
observer2 4 years, 3 months ago
Dis one joke, Wall Street should be ashamed of themselves disguising a sovereign debt as a corporate quasi government agency with massive losses.
There must be something ethically wrong with making ppl pay the debt they did not agree to assume.
The entire structure is flawed. The airport and port authority bonds do not directly charge thier customers/shipppers, it is a debt of the corporation and not its customers or travelers.
Dis a fall apart soonest.
observer2 4 years, 3 months ago
A simple lawsuit by one customer asking the court stay the bond repayment port of his bill on the grounds that he did not agree to lend BEC any monies should make the entire house of cards fall apart.
Parliament can commit the Bahamas to repay a debt but parliament can’t force an individual to incur a specific debt that individual didn’t agree to assume.
When customers open a BEC account they only agree to buy electricity, not debt. At the very least BEC should have all customers sign or notified that the terms of their electricity supply contract has changed and they are debtors to these new foreign masters.
First you start with light, then water, the. Post office then national insurance where do we stop when we directly saddle individual Bahamians with specifics debts.
There is zero precedent globally for such a bond.
Normally Bahamian sovereign debt is 2 to 3 times over subscribed, because they only have indications for 90% means that foreigner a lil afraid a BEC dem. Where are the up to date audited accounts? Where is the prospectus? Where is the road show for Bahamian investors? Where is the moody rating? Where are the exact projects for the funds raised? Where is the BEC tract record of collections ... lol, if Dey can’t turn off da lights of ppl on the protection list how can you collect bond interest from dem.
I ain know who Dey tryin to fool wit dis set a nonsense.
I assume opposition lawyers are just waiting for BEC to put the line item in a bill before bringing the litigation on behalf of one customer.
If one get set aside den ain nobody ga pay.
FNM need to stop harassing da people’s dem.
Well_mudda_take_sic 4 years, 3 months ago
Some excellent points touched on here. But here's another key consideration:
Government is taking the position (rightly or wrongly) that it guaranteed, on behalf of the Bahamian people, the borrowings and other indebtedness of BEC/BPL and therefore has a right to 'effectively tax' the Bahamian people through higher charges for electricity consumption whatever amounts it (the government) deems necessary to repay BEC/BPL's debts, which debts are currently in the process of being transformed into Rate Increase Bonds for issuance to dumb investors who tend to buy junk of the worse possible kind from a default risk standpoint.
Well_mudda_take_sic 4 years, 3 months ago
A few more important points:
It's unlikely investors will buy the Rate Increase Bonds unless our stupid government agrees to make the bonds a sovereign risk by guaranteeing their repayment to the bond holders - otherwise sky high interest rates on the bonds would be demanded which are simply unaffordable to BPL and its customers. So, that being the case, the whole exercise to transform BEC/BPL's debts to bonds was an utterly useless and futile waste of time to begin with (not to mention the costly consultants fees involved) because the government's position as guarantor (payor of last resort) will almost certainly remain unchanged.
This whole deal has been contrived with one objective in mind: To replace (bailout) the existing largest creditors of BEC/BPL (including several very large local creditors) with funds from an entirely new set of creditors, i.e. those foreigners who are foolish enough to buy the proposed Rate Increase Bonds. And our stupid corrupt Minnis-led FNM government (which has a few horses in this race) will likely agree to pay an outrageously exorbitant interest rate on the bonds to achieve its objective of bailing-out the larger current local creditors of BEC/BPL. And just take a guess at who is number one on the list of the largest local creditors of BEC/BPL.
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