The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government last night affirmed it plans to avoid the international bond markets for the next 12 months while raising 57 percent of its $1.761bn financing needs for 2022-2023 from domestic investors.

The Davis administration, unveiling its annual borrowing plan in time to meet today’s deadline, said it aims to exploit what it branded “favourable liquidity conditions” in The Bahamas to source “the bulk of its funding requirements” for the newly-started fiscal year. This will cover both the projected $564m fiscal deficit as well as the need to rollover, or refinance, some $1.197bn in maturing debt issues and loans.

While still accessing some $764.7m in external foreign currency debt, which will complement the $996.1m it is seeking in Bahamian dollar capital, the Government said it plans to source the former via a mix of proposed loans by multilateral lenders such as the Inter-American Development Bank (IDB), drawdowns on existing credit arrangements and commercial loans.

Credit supplied by multilateral lenders is often cheaper, with lower interest coupons attached, than that available from commercial sources. The Government’s determination to avoid the global bond markets is also driven by the hikes in US interest rates, which have increased US dollar borrowing costs for emerging market nations such as The Bahamas, as well as the market’s negative sentiment towards its existing listed debt.

The $800m bond, placed at 8.95 percent in late 2020 amid the COVID-19 pandemic’s peak, closed last night on the Frankfurt Stock Exchange at a discount of more than 30 percent to its face value, with a yield of 15.45 percent. The previous $300m issue, which carries a 6.95 percent coupon and was placed before the pandemic, is faring slightly better with a a 27.5 percent discount to face value and a yield at 13.2 percent.

“During fiscal year 2022-2023, the Government does not contemplate accessing the international bond market for financing. However, pending market conditions, the Government intends to explore opportunities for liability management, in line with the overarching debt management strategy of reducing cost and managing risks,” the Government’s borrowing plan said.

This indicates the Davis administration will seek to lower interest costs associated with its existing foreign currency debt sourced from international investors. Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business earlier this year that the Government does not plan to return to the global bond markets this fiscal year and the borrowing strategy reflects.

While the Government moves to create breathing space so that the international bond markets - and their sentiment towards The Bahamas - have time to recover and become more favourable, the plan added: “Foreign currency loan financing is to be predominantly sourced from proposed new international financial institution related policy loans totalling $372.5m, of which $160m is expected to be accessed by December 2022.

“This approach is aligned with the broader debt management strategy objective of lengthening the maturity structure of the debt. The Government budgeted an estimated $112.2m in installment disbursements on existing multilateral loans associated with investment projects and budgetary support initiatives.

“Of this total, approximately $84.9m (75.7 percent) represents IDB-related projects, $21.8m (19.4 percent) are Caribbean Development Bank-financed projects and the remaining $5.5m (4.9 percent) are associated with a European Union facility.”

The Government is thus planning to exploit the $2.836bn in surplus assets within the Bahamian commercial banking system at end-May 2022 to generate the bulk of its debt financing needs. “The fiscal year 2022-2023 annual borrowing plan envisages a domestic environment in which liquidity conditions remain favourable and support opportunities for the Government to obtain the bulk of its funding requirements through a combination of domestic short and long-term security issuances and loans,” the report said.

“This scenario will allow the Government to progressively reduce its reliance on foreign currency borrowings, as designed in the fiscal year 2022-2023 to fiscal year 2024-2025 medium-term debt strategy. Of the $1.761bn in gross financing requirements, approximately $996.1m (56.6 percent) is to be sourced in Bahamian dollars and the remaining $764.7m (43.4 percent) in foreign currency.

“However, the Government will continue to monitor domestic market conditions and investor sentiment to capitalise on opportunities for achieving a greater proportion of the financing from domestic sources.” The Davis administration has repeatedly voiced confidence in its ability to do this even though commercial banks and other institutional investors are at or near their prudential and regulatory limits over the amount of government securities they hold.

“Bond redemptions in fiscal year 2022-2023 of $606.1m will be refinanced in the domestic market with new issuances. The Government also proposes the issuance of an additional $125m in domestic bonds, bringing the total issuance to $731.1m” the borrowing plan said.

It added that the Government plans to adjust the maturity of its issues to meet market demand, while seeking to push this out “to minimise refinancing risk and promote a sustainable debt path over the medium to long-term”. The remaining $220m will be sourced from commercial loans.

The majority of its domestic bond refinancing will take place in October 2021, when $200m comes due for rollover, with $100m maturing in both December 2021 and March 2022. Treasury Bill rollovers in the current fiscal year will total $3.428bn with some $45m in new money raised.