Thursday, November 26, 2009$300 Million Bond Sparks Frenzy

Scott Armstrong Bahamas $300 Million Bond Sparks Frenzy

A $300 million bond issue by the Bahamas government has been successful with US investors oversubscribing by $83 million.

The US-dollar sovereign bond issue was intended to reschedule an existing $200 million loan, but after significant demand for the 20-year, 7 per cent interest deal the government decided to raise a total of $300 million.

The Minister of State for Finance Zhivargo Laing has hailed the success of the bond issue as an indicator of investors' confidence in the long-term economy of The Bahamas, adding the deal had enabled the nation to secure a better rate for its debt and that borrowing the huge sum from the foreign market would "enhance the lives of Bahamians".

But one critic of the loan today expressed fears over the mounting level of foreign capital propping up the Bahamian economy, saying "in the end all loans have to be repaid."

The issue came after the government gave a series of presentations to investors in New York, Boston and Los Angeles, in partnership with the Royal Bank of Canada and FirstCaribbean International Bank.

Minister Laing today praised the work of all concerned in the deal, saying he was not surprised at the level of interest in the bond issue.

He said: "This is a sign of just how well our credit rating is thought of. We have raised $300 million but to be $83 million over-subscribed is a measure of how confident investors are in our financial record.

"Frankly investors were for the most part familiar with our story, about the economy of The Bahamas and our history of stability and success.

"In some cases though they were surprised about how different our fiscal situation and our debt to GDP ratio was compared to others in the region.

"In fact we had some large investors who normally don't get involved in offers under $500 million expressing interest and wanting a larger offer from us."

The minister said that US investors had flocked to The Bahamas issue as it represented a safe bet in the middle of a difficult economic time.

He said the extra $100 million would be used to service the existing budget deficit and be ploughed into projects to better the lives of Bahamian residents.

The $300 million bond issue comes against a backdrop of rising government debt to GDP which has caused alarm in some sectors.

In September Prime Minister Hubert Ingraham revealed the level of government debt in The Bahamas could rise well beyond 50 percent of GDP - taking it above the normal 40 per cent ceiling.

The ratio of government debt to GDP has risen steadily in recent years, according to Ministry of Finance figures.

In 2007/2008 it stood at 34 percent; it rose to 38.9 percent in 2008/2009 and is projected to jump to 43.2 percent in 2009/2010. The ratio is projected to increase to 46.2 percent in 2010/2011 and 47.4 percent in 2011/2012.

Yesterday James Smith, former minister of state for finance for the previous PLP government, and chairman of investment firm CFAL, said that while he understood the government seeking better rates for an existing loan, borrowing the extra $100 million presented risks.

He said: "Getting someone to lend you money isn't hard once they have assessed the risk, it's servicing the debt which is the issue.

"Sooner or later you have to repay, not only does this new loan add to our total debt but the foreign component of our debt growing, now heading towards $1 billion.

"It is one thing our debt being in Bahamian dollars because if the state essentially owes the money to itself it can always reschedule the loan, but you lose that ability the more you owe to foreign interests.

"What happens if those loans start being called in? It is as if the government is on a borrowing spree."

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