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Gov’t hires Rothschild for $11.8bn debt help

• Move could lead to ‘massive refinancing’

• Deal to focus on debt costs, management

• To give ‘credibility’ in telling Bahamas story

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has hired Rothschild & Co, a major global financial group, to advise on what could become a “massive refinancing” of much of the country’s $11.8bn national debt, it was revealed yesterday.

Multiple well-placed sources, speaking on condition of anonymity because they were not authorised to talk publicly, confirmed to Tribune Business that the Davis administration has engaged a firm with some 3,800 employees spread across 40 countries to help navigate the way forward after Hurricane Dorian and COVID-19 sparked a debt blow-out that worsened already-deepening fiscal woes.

This newspaper was told that Rothschild & Co, in its capacity as the Government’s independent debt adviser, will have multiple tasks and responsibilities. These include “figuring out how to manage” The Bahamas’ international foreign currency debt exposure, both reducing the cost (interest payments) on outstanding bonds and minimising the rates demanded by investors on future issues.

Its executives will also be charged with selling The Bahamas’ post-COVID recovery progress to the international markets amid the belief that this will be more credible coming from Rothschild & Co, which knows the investors and players as a participant itself, than the Government. “They speak to each other and speak the same language,” one contact said of Rothschild and the global markets.

Several sources, meanwhile, said Rothschild & Co may ultimately be tasked with leading a major refinancing of both The Bahamas’ existing and international foreign currency debt. This, they added, might involve making The Bahamas’ domestic debt available to overseas investors by listing it on an international exchange - a move that would enhance liquidity by increasing the debt buyer pool and, potentially, bring yields down.

This, though, would require some nimble relaxation of The Bahamas’ existing exchange control regulations. It would also mean that the price of the Government’s Bahamian dollar denominated debt would no longer be fixed, as it is currently, even though such a move would result in it being acquired by foreign investors paying foreign currency. It is unclear whether the Government or Central Bank would entertain what, in The Bahamas’ context, would be a drastic reform.

“Apparently the Government has retained them as consultants for some sort of massive debt refinancing. They’ve been retained as consultants on the issue,” one source said of Rothschild & Co. Another added: “They have a fantastic plan that they have provided the Government with to refinance the debt and create the narrative to give the creditors a level of confidence to try and get the credit rating back up to scratch.

“It’s going to involve both the domestic debt and foreign currency. The positive thing is that the world will know The Bahamas has a plan of action and that the Government is not just scratching around.” Neither Simon Wilson, the Ministry of Finance’s financial secretary, nor Senator Michael Halkitis, minister of economic affairs, could be reached or responded to Tribune Business inquiries on Rothschild’s hiring before press time last night.

However, Mr Wilson previously told this newspaper that this nation’s bond prices “don’t reflect the confidence investors have in The Bahamas” and “a benchmark issue” may be needed to help address this. Rather than issue new sovereign debt, the Government could seek to consolidate existing bond issues via a collective $1bn-plus refinancing that would help establish “a benchmark yield” for all Bahamas issues traded on the international capital markets.

“Our bonds are held closely by a small group of investors. One of the challenges we have is that we are not on an index, such as the JP Morgan Index. If our bonds were indexed, placed on an index, the potential amount of persons willing to purchase our bonds will increase,” Mr Wilson said at end-April.

“That will have some downward pressure on pricing. What we have to do is find ways to find new investors. For us it means it’s an education process, talking to investors, talking to banks and having strategy. One of the things we need to do is have a benchmark yield. Our offerings are relatively small; $100m, $500m, $600m. Investors like bigger offerings.

“We need to think about having a benchmark issue, $1bn or so. That does not mean new debt. It’s sweeping up smaller debt investors are holding and taking them up. We have to think about that. It enhances liquidity. Our bond pricing doesn’t reflect the confidence investors have in The Bahamas and certainty.

Data from the Frankfurt stock exchange shows that the $600m bond, placed by the Minnis administration at the height of the COVID-19 pandemic in 2020 at an 8.95 percent interest rate, closed last night at a near-36 percent discount to its face value. And the yield on the same issue, whose principal is due to mature for repayment in 2032, is also just shy of 17 percent.

Meanwhile, the $650m bond placed in 2018 at 6.95 percent, and which represented the last major foreign currency issue before the COVID-19 pandemic, is trading at a near 33 percent discount and yield of almost 15 percent. This suggests global investors are heavily discounting The Bahamas’ sovereign debt because of the perceived increased risk associated with it following the pandemic-induced debt surge and multiple credit rating downgrades.

The Bahamas was also reported by Bloomberg News to be among 19 “emerging markets” who may eventually struggle to repay their debts based on current prices (discounts) and yields demanded by investors. It was among ten nations identified as falling into this “distressed territory” since the beginning of 2022.

It is against this backdrop that Rothschild & Co will get to work. The Bahamas’ total foreign currency debt stood at $5.351bn, some 45.2 percent of the total, at end-March 2022, while the debt-to-GDP ratio was over 98 percent. “I think they’ve retained Rothschild & Co to help them figure out how to manage their international debt exposure,” one source said of the Government.

“At the moment, it’s about advising how to potentially reduce the cost of future debt if they have to go to market to raise more as well as help them manage the existing dent in terms of the credit rating so they improve the cost of funds and value of bonds on the international market. They are supposed to help the Government figure out how to minimise the cost, and the best way for how to structure it, with regard to the existing debt and maturities.”

Tribune Business was told that the Government had been talking to potential candidates for the debt advisory role since late 2021. Rothschild & Co was among three to four financial advisory groups that visited The Bahamas to give presentations, and it was selected as the “preferred” bidder - a choice that is also understood to have been approved by the Government-appointed Debt Advisory Committee.

Members of the Debt Advisory Committee have not been publicly disclosed apart from its chairman, former minister of state for finance and ex-Central Bank governor, James Smith. Tribune Business, though, can reveal that other members include well-known business executive Felix Stubbs; RF Bank & Trust president, Michael Anderson; RBC Bahamas head, LaSonya Missick; and executives from financial institutions, Deltec and Pictet.

“I do think the Government is positioning itself so they can approach the international markets, whether the multilaterals or anyone else, so that they have more substance to go and negotiate,” one source said. Another added that Rothschild & Co will also be “advising on the messaging” that The Bahamas delivers to the global capital markets and investors about the pace of its COVID recovery.

“There’s also a perception that The Bahamas’ position is seemingly not fully understood in the international community, the capital markets,” they added. “The rate of a recovery of a tourist destination 40 minutes from Miami is a lot quicker than Barbados, which relies more heavily on UK visitors, and other parts of the Caribbean. The Bahamas is closer to the US and well-known.

“What we take for granted in terms of knowledge of the place, that is not necessarily known by some hedge fund or pension fund. They want to know how you are going to pay me back or my clients. They want to know the chances of recovery for foreign currency inflows.

“They speak to each other; they speak the same language,” the source said of Rothschild and the global capital markets. “We felt they can carry the message with a little more credibility. There is the old Bahamian saying: ‘A fisherman never says his fish are stink’.”

Comments

Baha10 1 week, 5 days ago

Would seem that whilst our “Fish” may not “yet” be stink, they are neither fresh and about to be stink!

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Maximilianotto 1 week, 5 days ago

The fish is stinking from the heads and now comes the price for 49 years of socialist mismanagement. Harsh times ahead. And Rothschild retainer what?$25 m but only the down payment? There’s no one in government who even understands their language (merde alors) What will they recommend? To turn to the IMF? Will be hard to bribe these number crunchers with yachts booze girls and filming all?! The Frankie W way? $5 bn FDI including Our Lucaya? Time to go. Or Chinese in Macao? Long ago but Films somewhere.

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hrysippus 1 week, 5 days ago

The country owes twelve billion dollars; ,, ,, ,,,Let me break this down for D minus scholars, .. .......Our population close to four hundred thousand, ..Some live in shack ,some in house dem, Every one of us from babe to gran, .. ... Has a debt growing faster than Shaunee ran, .... . ... ...... ..Each one of us made slave to debt. . ...We struggle to have the interest met,.... ....We only meet it by borrowing more, ... .. This bleeding pussy fiscal sore, ,, ,,, ,,The finance ministers have all got rich. ..As they drove us into this money broke ditch.

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Maximilianotto 1 week, 5 days ago

The same Neil Hartnell wrote yesterday

http://www.tribune242.com/news/2022/j...">http://www.tribune242.com/news/2022/j...

But true tge investors aren’t tepid - they’re gone!

Goldman will be happy to liquidate US Treasuries given as collateral for hundreds millions loans! What a competence!

Unbelievable how knowledgeable journalist!

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tribanon 1 week, 5 days ago

The selection of Rothschild & Co is most disappointing as it likely means the two principals of AF Holdings, namely Emanuel Alexiou and Anthony Ferguson, are also somehow very much 'in the mix' with James Smith. AF Holdings and its principals own and/or control the CFAL financial services group, the Colina insurance group and The Nassau Guardian.

Word on the street has it that PM Davis (who is also minister of finance) is placing way too much reliance on advice and recommendations being received from Anthony Ferguson and James Smith, possibly including the selection of Rothschild & Co. In fact, this reliance is so much so that others within the ministry of finance, like Michael Halkitis and Simon Wilson, appear to have been emasculated by Anthony Ferguson, James Smith and Emanuel Alexiou.

In early 2017 AF Holdings announced that Ansbacher (Bahamas) had completed its acquisition of the book of business of Rothschild (Bahamas) from Edmond de Rothschild (Suisse) SA. Apparently, The Rothschild Family thought it best to bail out of The Bahamas to focus their activities on more profitable markets.

Anthony Ferguson, then executive vice chairman of Ansbacher (Bahamas), said: “We are pleased to conclude the purchase of this highly respected and internationally diversified wealth management company. The acquisition of Rothschild (Bahamas) is an excellent strategic fit that will significantly expand our reach and capabilities in some important lines of business. We believe that our prudent wealth management strategies, combined with the large distribution network of Rothschild (Bahamas), will allow us to help more people manage their wealth securely for generations to come. Over the coming months, we will drive forward the integration to maximise the benefits for our clients, employees and shareholders.”

And then in January 2022 (only a mere five years later), AF Holdings announced the sale of Ansbacher (Bahamas) to Deltec Bank & Trust. At the time, Andrew Alexiou, the son of Emanuel Alexiou and managing director of Ansbacher (Bahamas), said in a press statement: “AF Holdings has taken the strategic decision to divest its interest in Ansbacher (Bahamas) in order to focus on other investments and business interests in The Bahamas.” Talk about an about face from five years earlier!

PM Davis had better tread carefully here as there are likely to be relationships he thinks he understands but in fact may know little if anything about. Besides, many Bahamians are just not comfortable with the extent to which PM Davis is allowing Anthony Ferguson and James Smith to ingratiate themselves into perhaps the most important and pressing matters currently within his portfolios as PM and minister of finance.

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Maximilianotto 1 week, 5 days ago

Much easier - bond holders instructed government to appoint Rothschild which is globally leading government debt restructuring advisory. So it’s either default as no “tepid investors” - yesterday’s joke of Neil Hartnell- are on the horizon. It’s Rothschild or IMF or default. Rothschild is incorruptible as these young investment bankers will blow away double aged Bahamian government officials who aren’t even able to do the simplest business plan. And Rothschild guys will speak clear text - known for arrogance - will slash all SOEs increase NIB contributions and pension age cut civil service.Tough times ahead . New Day government now in Paris. When the money gone we all go home. Paris has taken over. With this article Rating is CCCC you name it.Will take some time until Bahamians swallow the bitter pills. So 10 months of traveling talking. So hopefully good French restaurants here soon!

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tribanon 1 week, 5 days ago

Rothschild & Co is not a big player in the global capital markets according to most independent rankings of financial institutions that swim in that fish bowl. They are a relatively small advisory shop in the grand scheme of things, but I agree they are notoriously ruthless and have been involved in a number of high profile scandals over the years. Their stumbles usually receive much publicity because of the infamous family name.

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Maximilianotto 1 week, 4 days ago

Rothschild isn’t a player in capital markets at all. They are leading advisers and the real capital markets players will fund. So all of them making billions of governments New Day. It’s a great New Day for the advisers and bankers. Cash ahead. Bahamians voted them in. Taking $12 bn debt and then complain and blame the lenders won’t impress anyone.

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JokeyJack 1 week, 5 days ago

Old pirates, yes, they rob I Sold I to the merchant ships Minutes after they took I From the bottomless pit

But my hand was made strong By the hand of the Almighty We forward in this generation Triumphantly

Won't you help to sing These songs of freedom?

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JokeyJack 1 week, 5 days ago

No songs of freedom for Bshamians, cause they don't want it. They continue to vote for the same slave masters. Or did they? Govt won't release the election results by polling division, so who knows who won the election?

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Bonefishpete 1 week, 5 days ago

1 USD = 152.98 JMD Jamaican Dollar. Pray the Bahamian Dollar never dips so low.

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JokeyJack 1 week, 5 days ago

The Bahamian people DIPPED so low as to CELEBRATE Independence this year - with all of the ways that this country sucks right now - they were out celebrating in full force. Government knows they are HAPPY, so they don't have to check for the people. Happy people don't need no help.

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DDK 1 week, 5 days ago

What is the point of throwing money at financial advisors when 1. government never takes advice and 2. all Bahamas governments are hell-bent on relieving the public purse of as much as possible in the shortest period of time? What a colossal waste of time and money; it is a ploy to pretend they care about the mess in which their five decades of corruption and gross inefficiency have left the Country.

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tribanon 1 week, 4 days ago

For this to have happened the IMF must be squeezing the dickens out of Short Fatso Davis's tiny rat-sized nuts.

The IMF will soon be castrating the tiny rat-sized nuts of corrupt Davis and, once they are firmly in control of the governing of our nation, they will allow their foreign 'vulture' constituents to swoop down on us and feast on our carcass while they impose the most severe and cruel austerity measures imaginable on the Bahamian people.

The smart money left the Bahamas quite some time ago knowing the day of reckoning was bound to come sooner rather than later. And it is only fitting that all of this should happen under yet another very corrupt PLP government with Short Fatso Davis as its leader. Yessiree, we will be slipping back into the days of slavery under a PLP government. The irony of it all, to say the least.

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