By NEIL HARTNELL
Tribune Business Editor
The Ministry of Finance’s top official yesterday asserted that the Government’s $206.5m “repurchase” deal with Goldman Sachs “speaks volumes” to the credibility of its fiscal and economic plans.
Simon Wilson, the financial secretary, told Tribune Business that such a transaction with the “crème de la crème” of global investment banking “sends a very strong message” about the Government’s standing despite its $10.3bn-plus direct debt.
Speaking after the ministry unveiled the repurchase or “repo” agreement, which saw the Government transfer almost $236m worth of its US bond holdings to Goldman Sachs in return for $206.5m in cash, he said an institution of its stature would not do business with any country considered to be “heading for bankruptcy”.
Thousands of so-called “repos” take place daily in the global capital markets, monetising assets into cash, although such instruments are used less commonly in The Bahamas. The assets transferred to Goldman Sachs, which is effectively now holding them in escrow for two years, represent US Treasury bonds previously held in government-established “sinking funds”.
Those “sinking funds” were set up to accumulate assets that will be used to repay future foreign currency bond principal when those issues mature, and the “repo’s” terms ensure the Government retains ownership of the transferred bonds.
The Government will also collect any interest paid by its US counterparts on the bonds, which will help to narrow/offset the fees and interest charged by Goldman Sachs on the deal. After 24 months, Goldman Sachs is obligated to sell the bonds back to the Davis administration at the same $206.5m price for which it originally purchased them.
Describing the arrangement as “the cheapest form of financing we can get”, Mr Wilson said the Government was “very confident” it will be able to meet the $206.5m price to buy the US Treasuries back given that it was “not a bullet repayment” and did not have to be paid all at once. Repayments could be spread out over the two years.
“The main thing is that Goldman Sachs is the crème de la crème of investment banking,” the financial secretary told Tribune Business. “The fact they are interested in doing a transaction with The Bahamas sends a very strong message.
“We could have done a transaction with a number of institutions. The fact that Goldman Sachs wanted to be the counter-party sends the right message to the market that have the right person that believes in our strategy.”
Suggesting that the “repo” counters multiple naysayers, who have argued that investors are seeking to reduce their exposure to the Bahamas government, which is having difficulty fully placing its debt issues, Mr Wilson added: “This does not signal any type of financial stress. It’s the next step in our fiscal strategy, the next transaction.
“Over the last couple of months we’ve heard that the Government is desperate, scrapping. Do you think Goldman Sachs would put their name behind a country headed for bankruptcy? The sinking funds were established over 20 years ago.
“This was us being prudent, ultimately, and the fact Goldman came along and entered into a transaction with the Government of The Bahamas speaks volumes as to what they think of us, and how well regarded we are internationally. It speaks volumes for us, and that’s a very important thing. The counter-party is very important.”
The Ministry of Finance statement said the funds received from Goldman Sachs, which it is understood to have been talking to since last year, will be employed for “general budgetary purposes during the 2021-2022 fiscal year”.
So-called “repos” are often used to provide bridge financing, but Mr Wilson said providing US dollar funding until the Government can place a longer-term international bond was not the main purpose of the transaction.
Pointing out that the Government is entering into “a high period for revenue”, he added: “This is the cheapest form of financing we can get. Any interest earned on the bonds still belongs to the Government. Under the repo, the bonds are still our bonds, so we receive the interest on them.”
He added that this income stream will partially offset the fees/interest charged by Goldman Sachs, so “the net effect, the actual expense to the Government”, will be very small although no details or figures were provided on this.
“It’s not a bullet repayment, so we’re very confident we can do it,” Mr Wilson said of the $206.5m that has to be repaid in 24 months’ time. “The repayment schedule will be disclosed in our future debt reports.”
Revealing that this was not the first time that the Government has entered into such a “repo”, he indicated that Goldman Sachs had encouraged it to make full disclosure because “it sends a good signal to the market”.
“They felt it was very important to signal to the market the relationship they have with the Government, and they thought it would be a benefit to us. We agreed,” Mr Wilson said.
Based on the Government’s 2021-2022 half-year fiscal report, virtually all assets contained in the sinking funds have been included in the Goldman Sachs transaction. “During the period, contributions made to the sinking funds established to retire future debt obligations totalled $30m,” the report said.
“At end-December 2021, the three arrangements earmarked for scheduled retirement of external bonds held a cumulative value of $236.5m, while the funds set aside for the two local arrangements stood at $13.4m.”
The Ministry of Finance, in unveiling the February 28, 2022, transaction with Goldman Sachs, said the deal would boost short-term cash flow and liquidity.
It added: “Under the terms of the agreement, the Government sold and transferred to Goldman Sachs International a $235.9m nominal amount of US Treasuries in consideration for a purchase price of $206.459m from Goldman Sachs.
“It is intended that the purchase price received by the Government from Goldman Sachs will be used by the Government for general budgetary purposes during the 2021-2022 fiscal year. The designated Treasuries are part of the sinking funds managed by the Central Bank of The Bahamas on behalf of the Government.
“During the term of the repo, subject to the Government complying with its obligations under the repo, Goldman Sachs is required to transfer to the Government amounts equal to any interest payments received on the Treasuries,” the release continued.
“On the scheduled repurchase date for the repo (24 months from the purchase date), Goldman Sachs is required to sell and transfer the treasuries (or equivalent assets) back to the Government against payment by the Government of the repurchase price of $206.459m (subject to such amount being reduced by any amortisation payments made by the Government) and the compliance with all other obligations under the repo.”