By NEIL HARTNELL
Tribune Business Editor
Bahamas Power & Light (BPL) is "concerned" it will be forced to pay a high price to place its $535m bond issue due to the Government's recent borrowing, a Cabinet minister has revealed.
Desmond Bannister, minister of works who has responsibility for BPL, told Tribune Business the utility's Board were fearful that the 8.95 percent interest attached to The Bahamas' recent $600m sovereign bond will be used as a benchmark to price its own upcoming debt financing which it still aims to place before year-end 2020.
And, with BPL's rate reduction bond (RRB) likely to be perceived as riskier than the Government's borrowing, especially given the absence of a guarantee from the latter and the fact the utility is still in the middle of its turnaround strategy, the interest rate will almost certainly be greater in either the high single digit or even double digit range.
This means that BPL's household and business customers, who will be called upon to service the interest and principal costs owed to investors who buy into the National Utility Investment Bond, may have to pay higher electricity bills than were initially anticipated.
BPL executives previously said the extra charge to be added to customer bills would be equivalent to 15 percent of current consumption, but the higher interest rate that will likely have been set following the Government's recent borrowing may force this to increase.
"I know they are concerned about current interest rates, but they are very optimistic about what they can do and I'm very positive about their leadership," Mr Bannister told this newspaper. "The challenge is if you get a sovereign rate, it's hard to get a rate lower than that on the commercial market."
The Board's concerns were confirmed by BPL chairman, Dr Donovan Moxey, who said it did not want any further delay to the $535m bond raise and will try to obtain an interest rate that is "fair and favourable" for Bahamian consumers.
Implying that BPL will have to balance global capital markets realities with imposing further costs on an economy and society already battered by COVID-19, Dr Moxey said: "We're working to close that bond before the end of this year, so we continue to move in that direction. I don't have a precise timeline for it, but I know our goal is to have that completed before the end of the year."
Echoing Mr Bannister, he acknowledged that potential investors in BPL's RRB issue will base their pricing (interest rate) and risk perceptions on what the Government was forced to pay for its $600m following two 'junk' creditworthiness downgrades and COVID-19.
"Investors will always look at that," Dr Moxey said of the Government's sovereign debt issue, "because investors always look for benchmarks. Given that the most recent pricing for financing was the Government's issue, that's something investors will look at.
"We'll have to try and negotiate a better rate if possible. It was $535m that we've been approved for. That's what we're certainly having discussions with potential investors on, and we will see how much of that can be raised at rates we consider to be fair and favourable.
"We would prefer not to delay, but are guided by reaching the best possible decision for the Bahamian people and how much they have to pay. We'd prefer not to delay, but there are multiple considerations. The focus is getting the best deal possible and closing out the financing. There are a lot of capital expenses we have planned out, and need money to carry them out. These are things we are looking at as well."
Mr Bannister, meanwhile, said the Government was seeking to reform the legislation providing legal underpinning for BPL's bond issue because the present statute is "highly deficient". He added: "Every time we look at going out we find that there are other things that have to be amended. We're getting advice on it, and as soon as we're ready we'll go to market."