The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official yesterday said The Bahamas’ planned $700m sovereign bond issue “has not stopped” with the Davis administration informed its early placement is “critical”.

Simon Wilson, the financial secretary, told Tribune Business the new administration has issued no instructions to halt the foreign currency bond’s placement via the international capital markets.

“It’s there. They’re working on it. The team is working on it. It hasn’t stopped,” he said. “It’s very likely that process will continue. No instructions have been given to stop that work. That work is well advanced.”

The bond, which was supposed to be placed by late September/early October 2021, was the centrepiece of the Minnis administration’s borrowing and financing plans. It was to account for 37.8 percent of the Government’s total $1.852bn gross borrowing forecast for the the 2021-2022 fiscal year, and was planned as the single biggest one-time capital raise during the period.

It was unclear, though, whether the Davis administration would proceed with its predecessor’s borrowing strategy as is or adjust it to better reflect The Bahamas’ fiscal woes or its own spending priorities.

And some sources had suggested that the $700m bond might be tweaked or adjusted, with the Government reducing the amount of foreign currency sought in favour of cheaper Bahamian-dollar debt.

“The new government is looking at it, and they’re going to change it,” one well-placed contact, speaking on condition of anonymity, said. “They’re not going to borrow that much in US dollars no more. I understand they’re going to change the mix. Before the last downgrade, it was 9 percent to borrow, and Bahamian dollars were at 4-5 percent.”

While the yields on external Bahamian government debt soared to 9 percent and over when COVID-19 hit, a chart produced by Moody’s shows that by August 2021 these had dropped to between 5-8 percent with the longer the maturity, the greater the return sought by international investors.

Mr Wilson, though, said it was unlikely that the $700m bond can be adjusted as the source suggests. “I don’t know if that can happen with the proposed structure,” he said. “Tweaking has its challenges. The lawyers will have already done a lot of work. To put a different currency in that arrangement means more lawyers and more fees.”

With the offering memorandum for the $700m bond issue still being worked on, Mr Wilson added: “The process is in train. The competent staff in the Ministry of Finance are handling that.” He said Marlon Johnson, acting financial secretary, and Wendy Craigg, the former Central Bank governor who acts as an advisor to the Ministry, had both told the new administration that “it’s critical it happens early” in terms of the bond’s placement.

James Smith, an ex-finance minister and Central Bank governor, yesterday told Tribune Business it was “best not to alter” financing measures that had been left in place by a previous administration unless there was an exceptionally good reason to do so.

Describing the proposed $700m bond as akin to “a baton in a relay”, he explained that the Davis administration has to “finish the race” and cannot afford “to drop the baton”. 

While the new administration may have to explain why it is following the plans left by its predecessor, Mr Smith said: “A new administration coming in and meeting financial arrangements already in place, it’s best for them not to alter them.

“First, if you do, there could be a huge penalty charge. The second thing is the amount to be funded is earmarked for some very serious stuff already in play. The Government is under contract for payment for services already, or a supplier is waiting for final payment before a shipment comes in.

“It would be very unwise to interfere with transactions in the pipeline unless there is something nefarious with them or they are clearly out of order. I would recommend that you go along with it and continue those arrangements until. Governments are not dishonest. You may have dishonest people in them, but when the Government is making commitments at that level you can be assured from an accounting point of view that funding is earmarked for them in the Budget approved by Parliament.”

Tribune Business understands that the Prime Minister has been briefed on the $700m bond. While there are thought to be different opinions about the need for, and timing, of the bond’s issuance, not proceeding could cost The Bahamas the $200m guarantee from the Inter-American Development Bank (IDB) that will underwrite the placement.

Such a guarantee from a multilateral institution gives potential investors confidence, and can help lower the price (interest rate) The Bahamas must pay. “They’ll have to make a determination fairly quickly because the ball has started down the hill with Goldman Sachs,” one contact said of the Government in relation to the placement agents.

The Davis administration will also have to hit the ground running from a fiscal transparency perspective. The Government’s debt management plan, and 2021-2022 first quarter fiscal “snapshot”, are due for publication by the end of this month, while the annual Fiscal Strategy Report will be unveiled in November.

The latter will be especially key in setting out to the public, investors and rating agencies how it plans to tackle the national debt and deficit blow-out produced by COVID-19 and Hurricane Dorian.