The Tribune

• Investment chief: ‘At least’ $150m in raises

• Will turn fund’s 2021 ‘cash drag’ into returns

• Possible $300m activity a pre-COVID match

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian investment bank yesterday said it expects to match last year’s record $75m inflow into its fixed income fund and further build a “war chest” to deploy as possibilities emerge in 2022.

David Slatter, RF Bank & Trust’s vice-president of investment management, told Tribune Business that its Prime Income Fund was well-placed to exploit “at least” $150m worth of opportunities created by new securities issues poised to come to market in 2022.

While the high level of investor subscriptions in 2021 had created “a cash drag” on the fund’s returns, with such holdings accounting for 20.7 percent of its total $342.58m assets at year-end, he voiced optimism that Bahamian capital markets offerings with this year return to a level “consistent” with pre-COVID after two years of muted activity.

Based on RF Bank & Trust’s figures, some $70.9m of the Prime Income Fund’s assets at year-end were held as cash, and Mr Slatter said that had now increased “close to $100m” split with some $20m in short-term fixed deposits and the remainder in cash.

Suggesting that the fund’s total assets now stand at close to $350m, he told this newspaper: “Net inflows were around $75m last year, and we don’t see any slowing down in the first month of this year. So far there’s no reason to think it will not be similar this year.”

The 4.25 percent return generated by the Prime Income Fund for the 12 months to end-December 2021 was slightly lower than its annual five-year average of 4.51 percent, but Mr Slatter explained: “It’s simply the rate of inflows and not having many new offerings come to market.

“It’s too much of a good thing, but it’s positioned the fund well for this year as we see a number of things coming to market. There was a cash drag in 2021, but it bodes well for the second half of 2022 and going forward. We’re hoping one or two will come to market in the second quarter, but it looks like the bulk of it will come mid-year going into the third quarter.

“With what we’re looking at with the investment banking team, it’s pretty likely that at least 80-90 percent will come to market. There are a number of entities you are familiar with that I’d think would be attractive to the market. These are ongoing, viable entities looking to upgrade infrastructure or expand.”

Mr Slatter did not identify any equity or debt securities offerings likely to become available to Bahamian investors in 2022. However, Tribune Business understands that Doctors Hospital will be active surrounding plans for the build-out of its new Grand Bahama hospital and other expansion initiatives.

The Grand Bahama Shipyard is thought to be seeking local, Bahamian dollar financing to fund the preparatory work for receiving its new dry dock, while RF Bank & Trust is still proceeding with raising the $150m financing line for the Family Island airport public-private partnerships (PPPs).

And there still remains the possibility that Bahamas Power & Light (BPL) may launch its $535m rate reduction bond (RRB) refinancing, with local investors getting an opportunity to participate in that - a development that could also result in Shell North America proceeding with capital raising for the proposed liquefied natural gas (LNG) regasification facility at Clifton Pier.

“If you look at pre-pandemic, 2018 and before, I think we’re going to be kind of consistent with the volumes back then,” Mr Slatter told Tribune Business of anticipated 2022 capital markets activity. “A number of persons think we might have $200m-$300m coming to market in new securities, new issues. It could be closer to $300m; we just need timely decisions on an ongoing basis.

“I think at least $150m of the $300m we’re talking about comes to market. And it is more probable than not that the rest come to market, but they’re not as certain. The Prime Income Fund has a nice war chest of cash when these opportunities come to market.

“Last year the returns were lower than the historical average because of the cash drag. As this is placed [into new investments] the performance of the fund will improve on a steady basis. Some entities that had paper in the market chose to redeem because they had cash flow to repay, which took assets out of the market, and no new assets coming in,” he continued.

“In addition to cash on hand, we expect to have net subscriptions flowing in, and some of these deals coming to market are fairly sizeable - $50m, $60m and $70m - so there’s significant ability to place excess cash when we invest prudently for the fund.”

The Prime Income Fund invests in fixed income, or debt, securities such as preference shares, corporate bonds and government securities. Its main holdings include the Nassau Airport Development’s (NAD) paper, accounting for almost 10 percent of its holdings, together with Cable Bahamas and Aliv preference shares and notes.

“The fund’s large cash holdings means it has lots of capacity to take advantage of several private sector offerings expected to come to market in mid-2022. As excess cash is invested, the fund’s performance is expected to trend towards historic return levels,” RF Bank & Trust said in a note to investors.

“While excess cash means the fund is highly liquid, it also creates a drag on returns, which we have seen over the last 12 months. Granted, the fund has a substantial ‘war chest’ of cash and is well positioned to benefit from future investment opportunities. Also, a net return of 3.41 percent over the last year dwarfs what commercial banks are offering on fixed deposits.”

As for the broader economy, RF Bank & Trust added: “According to the International Monetary Fund (IMF), the Bahamian economy is expected to grow by 2.2 percent, 8 percent and 4 percent in 2021, 2022, and 2023, respectively.

“The main driver of this has been the tourism industry, and all numbers point to a strong rebound with Atlantis and Baha Mar reporting strong occupancy rates. The emergence of the Omicron variant in late 2021 is a challenge for tourism, but we feel COVID will transition from a pandemic to an endemic virus humanity will come to live with.

“Even with the strong rebound in tourism, unemployment remains high and if it persists will cause a delay in the rebound of the economy. The hope is that the rebound of tourism and more properties opening we will see a reduction in unemployment.”