By YOURI KEMP
Tribune Business Reporter
The deputy prime minister yesterday said the Government will largely tap the domestic capital markets for the remaining $400m debt financing it requires for the 2020-2021 fiscal year.
K Peter Turnquest, speaking outside the Cabinet Office following the Government's $600m foreign currency bond placement last week, signalled that the amount, timing and nature of any further borrowing will depend on whether the tourism industry and wider economy rebound as projected.
The latter event has direct implications for the Government's revenue and spending forecasts, and the predicted $1.327bn deficit for the 12 months to end-June 2021, which measures by how much expenditure exceeds its income. A slower and/or weaker-than-anticipated recovery would place the Minnis administration's fiscal projections in jeopardy.
“We do have another $400m in change left in our borrowing resolution that we will try to source primarily from the domestic market," Mr Turnquest said, "but we will work that out based upon the economic activity over the next couple of months, and see where we are and what our needs may be.”
Responding to concerns that raising an additional $400m from Bahamian investors may be problematic, given the ongoing fall-out from the COVID-19 pandemic and the Government's 'junk' creditworthiness with both Moody's and Standard & Poor's (S&P), Mr Turnquest said: “No, not at all. We are very comfortable where we are.
"We believe that The Bahamas continues to be a very strong player in the market. Our paper, as demonstrated, is very desirable, and we believe we will be able to achieve that. Now, the question really is about what’s the cost - what does it cost - and, of course, market factors will dictate what that cost will be.”
Mr Turnquest added that the Government's $600m foreign currency bond, placed with international investors last week, "is the largest chunk of financing under our borrowing authority that Parliament granted us in June.
"We are satisfied with the level of interest in our debt paper, with well over $1.1bn of interest [in the $600m bond], and we were able to come out successfully," he continued. “I know there is some concern about interest rate and the tenors, we will talk about that a little bit more in detail.
"There is also some concern about why we would go to an international offer versus a domestic offer, and we will talk about that a little bit to explain to the Bahamian people what we’re trying to achieve in this particular financing.”
The Ministry of Finance subsequently said the deputy prime minister will publish an update on the Government's borrowing plans at the House of Assembly's next sitting, in what appeared to be a response to tabloid media attacks on its fiscal plans and the $600m bond offering.
Mr Turnquest yesterday branded such attacks as "very unfortunate", as well as "mischievous" and "very misleading", while the Ministry reiterated its position that not all low interest rate loan offers are as good as they initially appear.
"The Ministry of Finance receives 15 - 20 offers every year, especially around post-budget time, offering very low interest rates to total debt forgiveness," it said. "These offers are considered when the investors have track records and sufficient background information on which to do due diligence. Transparency is required regarding the sources of funding and proposed financing structures.
"Unfortunately, many offers are from middlemen with no money themselves. Despite advertised low interest rates, often times their extraordinary up-front administrative and arrangement fees are not disclosed transparently and negate any rate savings they potentially bring.
"While market forces ultimately dictate interest rates, the Government always seeks the most favourable financing arrangements and manages its debt portfolio in a responsible manner to minimise investment risks that might call into question the country’s fiscal integrity."
Mr Turnquest, too, has previously hit back at suggestions the Government may be ignoring low interest rate offers to finance its $1.3bn deficit for the 2020-2021 fiscal year. One offer seen by Tribune Business involved a $750m foreign currency bond, priced at 3.87 percent interest, that would placed “with a major international bank” and funded by the global capital markets.
The offer, which was conveyed to Mr Turnquest on September 3, 2020, and copied to the Ministry of Finance’s acting financial secretary, Marlon Johnson, and ex-Central Bank governor, Wendy Craigg, came from Public Resources International, a US-based debt advisory firm that has worked on debt restructurings and similar fiscal matters with governments before.
“PRI has been engaged by the World Bank/IMF to implement debt settlements for seven countries, including Bolivia and Honduras in Latin America,” the company said of its credentials. “PRI has also carried out important financial assignments for Antigua and Barbuda, Grenada (including funding for a desalination plant through US Export-Import Bank), St Kitts and Nevis, and St Vincent and the Grenadines.”
However, the proposed bond would carry a “floating” rather than fixed interest coupon. Yet PRI argued this still produced a 3.5 percentage point savings rate for The Bahamas compared to the likely 7.5 percent fixed rate such a bond would attract, thereby cutting the interest bill for Bahamian taxpayers. The $600m bond issue just placed carried a much higher 8.95 percent interest rate.
It added that The Bahamas would be able to refinance the bond “without penalty” after three years, and said: “There is no floating rate risk for at least three years as the floating rate would have to increase 3.5 percentage points before fixed rate at 7.5 percent [making it] more advantageous than floating rate. No reputable economist considers this to be likely.”