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Gov’t’s $206.5m deal with Goldman ‘speaks volumes’

FINANCIAL Secretary Simon Wilson.

FINANCIAL Secretary Simon Wilson.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

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.”

Comments

Economist 1 year, 9 months ago

Seem to recall that Goldman Sachs led the way in lending that precipitated the collapse of the Greek economy 10 years ago.

Not a good omen.

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Maximilianotto 1 year, 9 months ago

Goldman first will cook the books like they did for the Greek government and if this doesn’t work they’ll do the restructuring, a bn$ business for them and our Bahamas will bleed 🩸 for decades, naturally B$ will devalue this way drastically reducing debt.

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Dawes 1 year, 9 months ago

What risk is Goldman taking? None, so this doesn't say anything about investor wanting to reduce exposure to our Govt. If we fail to pay they get $239 million in treasury bonds. So they may be thinking that we will fail. Or the amount in fees we are paying them is more then interest they would have earned on cash so its a win for them. Either way they will win.

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Sickened 1 year, 9 months ago

This is meaningless without knowing the current market value of the 'bonds'. That '236million worth' could have been the face value of the bonds.

If indeed the current market value is $236million then why don't we just sell $206million worth? Then we have no obligation to pay anything back at a certain point in time.

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Maximilianotto 1 year, 9 months ago

It’s a useless exercise enriching GS only. Hasn’t anything to do with investor confidence as overcollateralized by US Treasureies which enjoy investor confidence. Anyway GS makes risk free easy money.

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realfreethinker 1 year, 9 months ago

Another exercise in name dropping. I guess we should be impressed by the name "Goldman sachs". They are probably smiling all the way to the bank knowing our corrupt politicians are desperate for money

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themessenger 1 year, 9 months ago

Right on! They get the gold, we get the sack!

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Maximilianotto 1 year, 9 months ago

To ask for the math of this inexplicable exercise

  1. Government borrowing money at 9% to pop up otherwise non existing US$ reserves

  2. Government buys US Treasuries yielding 1%

  3. Government then pledged these US AAA rated treasuries at additional 8-9% p.a loan costs

  4. So total cost of this exercise is 17% per annum

Anytime wrong with this math?

Just curious.

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Maximilianotto 1 year, 9 months ago

Silence on yesterday’s comments? Speaks volumes. Simple math instead of long and wrong statements.

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Maximilianotto 1 year, 9 months ago

Yup. To put it into Caribbean language 'When the money done, all go home', in other words, Game Over

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