Central Bank’s waiver drives $202m sovereign debt boost

FINANCIAL Secretary Simon Wilson.

FINANCIAL Secretary Simon Wilson.


Tribune Business Editor


Incentives that sparked almost $202m of local investor demand for The Bahamas’ US dollar bonds has been “very, very significant” in driving an international debt turnaround, a senior official said yesterday.

Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business that the Central Bank’s temporary elimination of the 5 percent Investment Currency Market (ICM) premium for Bahamians and residents wishing to purchase the Government’s international foreign currency bonds had been “very successful” in expanding the pool of available investors.

This, in turn, appears to have helped restore international capital market confidence in The Bahamas’ sovereign debt. And, with listed bond issues now trading close to ‘par’ or face value, and yields having dropped by close to 50 percent in percentage terms, the recovery will help to lower the country’s borrowing costs when it taps global investors again - although the Government is aiming to avoid this for the entire 2022-2023 fiscal year.

“Based on the information we have, it has been very significant,” Mr Wilson told this newspaper of the impact of the Central Bank’s waiver. “Not so much for the transactions executed, but for the perception and confidence. The competitive pressure those Bahamians brought to the market has been very, very significant.

“It’s produced competitive pressure in the market that didn’t exist. It’s been very successful. It provides competitive pressure where none existed.” Waiving the 5 percent premium, which effectively acts as a tax on overseas investments, for Bahamian government foreign currency bond purchases only has expanded the pool of potential purchasers, brought greater liquidity to the market and increased demand for government debt.

This has resulted in improved pricing and yields on listed Bahamian government debt. The foreign currency bond due to mature in 2024, and carrying a 5.75 percent interest coupon, has recovered from a 52-week low of 72.84 struck in August 2022 to close yesterday at 95.05 - just barely down on its high for the past year and only slightly off its face value. And the yield demanded by investors has dropped from the 20 percent range to 10.9 percent.

It was a similar story with other Bahamas listed debt. Data from the Frankfurt Stock Exchange showed that the $300m bond, placed at 6.95 percent and due to mature in 2029, has recovered from a 52-week low of a more than 50 percent discount to face value (49.76) set in August 2022 to last night close at 73.77. The yield sought by investors has also eased from around 19 percent to 13.1667 percent.

As for the $825m bond placed at 8.95 percent at COVID’s peak, and due to mature in 2032, the price has recovered from August’s 52-week low at 55.01 percent of face value to close last night at 79.9. The yield had also fallen, this time to 12.9559 percent.

Still, Mr Wilson said the Government will continue avoiding the international bond market for the foreseeable future. “We don’t want to go out to the market this fiscal period,” he affirmed. “We’re looking at going to market perhaps a year from now.”

The Central Bank yesterday confirmed it has approved $201.6m worth of potential investments in Bahamian government international foreign currency bonds under the waiver, although Mr Wilson said there was a difference between approvals and the sum that has actually been purchased by Bahamian and resident investors.

Those who remain interested in accessing the concession have only a limited window in which to do so as the regulator announced that the waiver, which was introduced in early October, will now expire at year-end after almost two months in existence.

“Since the waiver, the Central Bank approved a number of transactions valued at $201.6m. Approved applicants must complete transactions on or before January 31, 2023,” the Central Bank said. “The bank wishes to advise that application for the said waiver will cease to be accepted after 31 December, 2022. Further, any ICM application received by the bank on January 1, 2023, or thereafter, will incur the ICM premium of 5 percent....

“The waiver of the ICM premium on outflows would preclude any approved transactions from the partial ICM premium rebate on the capital upon the liquidation of the investment and repatriation of proceeds to The Bahamas.” Applications to participate must be made through resident trust companies or a broker/dealer.

Sir Franklyn Wilson, the Arawak Homes and Sunshine Holdings chairman, told Tribune Business that the waiver was one factor that had contributed to the turnaround in the Government’s internationally-held foreign currency bond. “The decision appears to be bearing some fruit. I am further advised that another contributing factor had to do with two things,” he said.

“My suspicion, or my intelligence, is that the Government of The Bahamas seems to have been doing a better job of talking to the international capital markets. Two, I’ve been told that Rothschild & Co, their advisors, have played a role in organising more of these opportunities when the technical people can speak to the Government’s financial situation have been made available to capital markets participants. I’m told the combination of these two things has made a big difference.”

Sir Franklyn added that the more settled situation facing The Bahamas’ international foreign currency debt was “an essential and necessary first step” in establishing a yield curve that will also help to properly value and price the Government’s domestic debt.

“It’s a very good first step,” he said of the recovery, “and we’ll see what comes next. We recognise, and others recognise, that we’ve done a hell of a lot. We’re at a different place to where we were just four months ago.”

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