By NEIL HARTNELL
TRIBUNE Business Editor
nhartnell@tribunemedia.net
THE GOVERNMENT yesterday pulled the trigger on what is likely another $1bn-plus foreign capital raising that seeks to refinance up to $813m in existing sovereign debt following the model established in last year’s bond issue.
The Davis administration, copying the template used for June 2025’s $1.067bn bond, announced it is seeking to raise fresh debt that will pay-out investors holding five different existing bonds carrying interest rate coupons ranging from 6 percent to a maximum 9 percent.
Should it raise sufficient capital between yesterday’s launch and the planned Tuesday, October 27, closing, the Government will then repurchase these existing bonds from those investors who agree to sell it back. And, in exchange, those same investors will receive the new bond raised by The Bahamas on the international capital markets.
The Government’s goal is persuade as many investors as it can to accept the deal so that it can consolidate a significant portion of the five existing issues into just one bond. Similar to debt consolidation processes familiar to many Bahamians, where multiple debts are restructured into just one payment, the aim is to reduce interest (debt servicing) costs and extend out further the debt’s maturity.
If successful, this could reduce debt servicing/interest costs for Bahamian taxpayers while lengthening the time before the new bond has to be repaid. The five existing bonds, which the Government hopes to replace, are due to mature between 2028 and 2038 - meaning that the earliest date upon which investors must be repaid their principal is just two years away.
The Bahamas’ last foreign currency bond issue involved the repurchase, and refinancing, of $767m in existing sovereign debt and the Government will likely be seeking a similar result here. One capital markets source, speaking on condition of anonymity, said of the latest offering: “It’s going to be interesting to see what interest rate they are able to strike in the marketplace.
“It’s not the perfect time to be going to the market now. It will be interesting to see what kind of rates they are able to lock in when they are wedded together given all the turmoil in the marketplace. I hope that, at the end of the day, they are able to term it out and end in a better position from an interest payables standpoint.”
The “turmoil” relates to the recent increase in yields on 10-year US Treasuries, the global benchmark for setting most bond rates and prices, which have risen by 1.1 percentage points this year amid growing market concerns over America’s fiscal and debt sustainability. French government bonds also came under pressure yesterday due to recent rioting and social unrest.
Rising yields, or interest rates, also push down bond prices. This has also affected The Bahamas’ bond valuations with one of the issues targeted for consolidation, paying a 6.95 percent coupon and due to mature in 2029, dropping below ‘par’ in around April 2026 and remaining there despite a recent mini-rally that may be linked to the refinancing.
The new bond’s launch, and offer to repurchase debt from existing investors, has occurred just days after Prime Minister Philip Davis KC unveiled the much-disputed $39.3m fiscal “surplus” for the 2025-2026 fiscal year. And he later confirmed the Government would soon be tapping the international bond markets in the debate on Grand Bahama Power Company’s refinancing.
This signals that, besides attempting to refinance the existing $813m debt at lower costs and longer maturities, this new bond issue will likely also involve the combined $332m in existing GB Power debt to take it beyond the $1bn threshold. GB Power’s debts feature the $200m borrowed by the Government to finance its purchase, plus $131.82m in legacy debt left by the former owner.
“As part of the Government’s broader debt financing exercise for this fiscal year, the Ministry of Finance is preparing to approach the external bond market for a facility sized to meet both the central Government’s refinancing needs and these Grand Bahama obligations,” Mr Davis told Parliament last week.
“By consolidating them in that exercise, the Government expects to reduce annual debt service and to secure certainty about future interest payments…..The benefits to the two companies are considerable.
“Once these facilities are retired, the Grand Bahama Energy Company [acquisition vehicle] will be left with only its working capital facility to service, which substantially reduces its debt burden and improves its financial flexibility,” the Prime Minister added.
“The Grand Bahama Power Company will shed significant debt service costs, and savings that would have otherwise gone to the banks can be directed instead to the maintenance, operational improvements and capital works on which the people of Freeport, Eight Mile Rock, West End and East Grand Bahama depend.”
Sir Franklyn Wilson, the Arawak Homes and Sunshine Holdings chairman, yesterday argued it is especially noteworthy that, for the first time, Scotia Capital (USA) is acting as one of the dealer managers charged with placing The Bahamas’ latest bond and repurchase offer alongside the likes of BNP Paribas, J P Morgan Securities and Standard Chartered.
This, he signalled, shows the confidence that the international capital markets have in The Bahamas and its fiscal position, and which suggests they are “not listening” to the likes of the Opposition and concerns related to governance of the National Investment Fund, plus whether a $39.3m surplus has truly been achieved.
“I can say to you that, the people I spoke to, they keep saying the country is in a good place in terms of the perception of the international capital markets,” Sir Franklyn said. “That’s [Scotia Capital’s involvement] that more and more institutions are wanting to get that role,.
“You don’t have, on an $800m deal, four names of that calibre doing it. What I’m saying to you, the comment I am making, is it’s worthy of note the calibre and diversity of people who are taking the matter to market. That in itself is a statement. Otherwise how are you going to get that?”
Sir Franklyn added: “When you look at the country going back to the bond market, and look at the people doing the leadership, it gives you reason to believe the international market sees things differently from what has been the local narrative around here with political operatives.
“There are two different narratives, two different strains. It’s obvious the international markets are not listening to these local operatives including the shadow minister of finance [Kwasi Thompson]…. The fact there’s an expanding range of credible financial institutions willing to be part of it, and lead the initiative to get the funding in and put their name to it, is a positive thing for the country.”
Dr Duane Sands, the Opposition’s chairman, reiterated that the Government is now “onboarding external debt you didn’t have before” by refinancing GB Power’s legacy $131.82m commercial bank debt. This, he argued, is shifting the repayment liability from what was a private company to the Bahamian taxpayer.
“I’m sure they are going to get it done and say we are refinancing our debt. It’s not our debt. It’s their debt,” Dr Sands added of GB Power. “The question is ultimately whether or not they are refinancing at better rates, which is prudent, or whether this is more debt exposure which is not so great. The devil is in the details.”