NASSAU, BAHAMAS — The Government of The Bahamas has launched an offer to repurchase five series of international bonds with a combined outstanding principal of approximately $813 million through a planned new debt issuance, a move that could allow the country to refinance near-term obligations and retire longer-term securities at a discount.
However, senior banker Gowon Bowe, Chief Executive Officer of Fidelity Bank (Bahamas) Limited, is calling for greater clarity on the government’s debt management strategy and whether the transaction will deliver meaningful savings to taxpayers.
Bowe said the transaction appears designed to achieve two objectives: refinancing bonds approaching maturity in 2028 and 2029, while potentially taking advantage of discounted prices on longer-term securities to reduce the amount the government ultimately has to repay.
However, he cautioned that without details of the proposed new borrowing, including interest rates, maturity dates and the total amount to be raised, it remains difficult to determine whether the exercise will deliver meaningful financial benefits.
“I think it’s going to be important for the government to articulate what their strategy or strategies are in relation to the various securities because there’s no consistency,” Bowe said.
The transaction, announced Monday, October 19, involves an offer to repurchase five series of outstanding international bonds with a combined principal value of approximately $812.96 million.
The government intends to finance the repurchases through proceeds from a planned new international bond offering, effectively replacing some existing debt with new borrowing.
According to the official announcement, the five bond series carry interest rates ranging from 6 percent to 9 percent, with maturity dates extending from 2028 through 2038.
Three of the targeted series mature in 2028 and 2029, representing approximately $557.4 million in outstanding principal.
The largest individual series is the 6.95 percent bond due in 2029, with approximately $226.1 million outstanding, followed by the 6.625 percent bond due in 2033, with $175.6 million outstanding.
The government is also targeting approximately $173.1 million in bonds carrying a 9 percent interest rate and maturing in 2029, along with $158.2 million carrying a 6 percent rate and maturing in 2028.
The remaining series consists of approximately $79.9 million in bonds carrying a 7.125 percent interest rate and maturing in 2038.
The $813 million represents the total outstanding principal across the five bond series identified in the announcement, rather than a confirmed repurchase amount. The government has retained discretion over how much of each series it ultimately accepts for purchase.
Bowe explained that debt buyback exercises are typically undertaken either to refinance existing obligations on more favorable terms or to retire securities at prices below their face value.
For longer-term bonds, he said the government may be seeking to capitalize on discounted repurchase prices.
“The reality is the face value is what you owe, so for the longer-term securities, by having them at a discount, the government can actually retire those securities at less than the face value,” Bowe explained.
“There’s an opportunity for them, if you will, to save some money by buying them back whilst the price is below their par value.”
Under the announced terms, investors holding the government’s 6.625 percent bonds due in 2033 would be offered $986.25 for every $1,000 in principal, representing a discount of approximately 1.4 percent.
Holders of the 7.125 percent bonds due in 2038 would receive $970 for every $1,000 in principal, a discount of 3 percent.
While repurchasing these bonds below face value would allow the government to extinguish those particular obligations for less than their stated principal amounts, any overall financial benefit would still depend on the cost of raising the replacement financing and associated transaction expenses.
Investors holding $1,000 in the government’s 9 percent bonds due in 2029 would be offered $1,081.55, plus accrued and unpaid interest, if their bonds are accepted for repurchase.
That represents a premium of approximately 8.2 percent above face value.
The government is also offering $1,007.69 for every $1,000 in principal of its 6 percent bonds due in 2028 and $1,022.50 for every $1,000 in principal of its 6.95 percent bonds due in 2029.
Bowe suggested that the government’s interest in repurchasing shorter-term bonds could be linked to a broader refinancing strategy aimed at extending repayment deadlines and potentially securing improved borrowing terms.
“For the shorter-term securities, which is the other reason you would enter into a buyback, it’s effectively a refinancing, looking usually to have better terms,” he said.
“And those terms would be a longer term to maturity and ideally better interest rates.”
By replacing debt scheduled to mature over the next several years with longer-dated bonds, the government could reduce the concentration of principal repayments falling due in 2028 and 2029.
However, such a move would not necessarily reduce the country’s overall indebtedness, as the existing obligations would be replaced by new securities.
Bowe stressed that the financial implications of the transaction cannot be properly assessed without knowing the terms of the government’s planned new international bond issuance.
He noted that the international interest rate environment presents an important consideration, particularly given uncertainty surrounding inflation and United States monetary policy.
He said investors and analysts would need to compare the future repayment obligations associated with the proposed new bonds against those attached to the securities being repurchased.
“If the objective is really a refinancing of short-term maturities for longer-term debt, what is the planned issuance, the rate at which the planned issuance is going to take place, and being able to do a net present value of cash flows?” Bowe questioned.
He explained that such an assessment would determine whether the government’s new borrowing arrangements are financially more advantageous than maintaining the existing debt.
“We should be able to look at the cash flows associated with the new debt instruments that are being offered, and they should be more advantageous than the cash flows or the present value of the cash flows of the securities being matured,” he said.
The government’s announcement has not disclosed the interest rate, maturity date or total principal amount of the proposed new bond issuance.
It has also made clear that the repurchase exercise is conditional on successfully raising sufficient financing through the new offering on terms acceptable to the government.
Consequently, the transaction does not represent an immediate reduction of more than $813 million in government debt using existing cash reserves or budgetary savings.
Instead, its financial impact will depend on how much existing debt is repurchased, the prices paid and the terms of the replacement borrowing.
Bowe suggested that recent developments in the country’s fiscal and economic position could be influencing the government’s decision to approach international capital markets.
He pointed to recent credit rating upgrades, improvements in the debt-to-GDP ratio and the government’s reported fiscal surplus as factors that may be contributing to the timing of the proposed transaction.
However, he noted that The Bahamas has not yet returned to investment-grade credit status and that international investors would independently assess the government’s fiscal performance.
“If I were to offer an opinion as to why, I think the fiscal circumstances with recent credit rating upgrades, although not yet back in investment-grade sort of status, the reported surplus,” Bowe said, adding that international investors have the capacity to independently assess the country’s fiscal position and outstanding questions surrounding its performance.
“Ultimately, I think the overall debt-to-GDP ratio and some of the positive developments in the fiscal performance, whether it’s a surplus or not, as well as the economic fortunes of the country, may be leading them to seek a bulk financing,” he said.
Bowe also referenced the government’s previously stated intention to secure financing related to the Grand Bahama Power Company, suggesting that the latest international debt exercise could reflect a broader effort to access available capital.
However, the announced bond repurchase terms do not establish that the new borrowing will be used to finance that initiative.
Beyond the potential financial benefits, Bowe raised concerns about the absence of detailed domestic communication surrounding the proposed transaction.
He argued that international financing announcements of this magnitude should be accompanied by a clear explanation of the government’s wider debt management objectives, particularly given their implications for taxpayers and domestic investors.
“What is sometimes concerning is that very often these announcements are seen in the international environment without local communication,” Bowe said.
“Why the local communication is important is there should be a clear debt management strategy.”
He acknowledged that the government publishes a debt management strategy but maintained that the details of the latest exercise had not been outlined in documents made available up to that point.
“There is a debt management strategy publication that is issued, but none of this is set out in the documents that have been published up to this point in time,” he said.
Bowe suggested that the prospectus and other materials being circulated to prospective international investors may contain additional details about the government’s objectives.
Nevertheless, he maintained that domestic market participants should have access to a clear explanation of the strategy.
“The government really has a responsibility to articulate this wider debt management strategy to the domestic market because there are equally domestic securities that come up for maturity in far greater numbers,” he said.
He pointed specifically to the country’s Treasury bill obligations, estimating that more than $1.3 billion in Treasury bills mature annually.
Bowe argued that a clearly communicated long-term debt management strategy would benefit both international and domestic investors by providing greater certainty about the government’s future financing requirements.
“In the absence of clearly articulated strategies, persons are left to speculate, whether domestically or internationally,” he said.
He also questioned the longstanding approach of conducting financing exercises largely through financial advisers without sufficiently communicating the broader objectives to the public.
“I think this historical behavior of sort of working through advisors, keeping the cards close to the chest, is one that is not the most beneficial at this point in time and probably not the most advantageous,” Bowe said.
“Clear articulation of the plan, clear articulation of the objectives and clear articulation of the pricing considerations would certainly benefit all interested parties and lay bare the government’s plans for its overall debt management.”
According to the government’s announcement, the repurchase offer opened on October 19 and is scheduled to expire at 5 p.m. New York City time on October 27, unless extended or terminated.
The government expects to announce the amount of bonds tendered by investors on October 28, followed by a determination of which offers it will accept and the maximum amount to be purchased.
Settlement is expected on October 29, subject to the successful completion of the new bond offering and other conditions.
The government has retained BNP Paribas Securities Corp., J.P. Morgan Securities LLC, Scotia Capital (USA) Inc. and Standard Chartered Bank as dealer managers for the transaction.
Sodali & Co Ltd. is serving as information and tender agent.
The government has also indicated that investors participating in the repurchase exercise may receive some preference when allocations of the new bonds are considered, although no allocation is guaranteed.
There is no minimum participation requirement, and the government has reserved the right to amend, extend or terminate the offer.
Although the five targeted bond series total approximately $813 million, the announcement does not establish that the government will repurchase the entire amount.
The government will determine the maximum amount it is prepared to spend on each series and may accept only a portion of the bonds tendered by investors.