By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will launch its new short-term debt security on July 22 via a $150 million offering to institutional investors, Tribune Business can reveal.

The Government and its advisers have set a collective $250 million fund-raising target for the Bahamas Government Treasury Notes over the course of this fiscal year, with the bulk - some 60 per cent - coming from their debut.

The debt securities, which are designed to replace the existing Treasury Bills as the Government’s main source of short-term funding, will be broken into three tranches - each with different maturities and interest coupon.

A July 9 presentation by RoyalFidelity Merchant Bank & Trust, the Government’s lead advisor and placement agents, reveals that the upcoming $150 million issue will be evenly split between 30-day, 90-day and 180-day Treasury notes.

The 30-day (one month) bonds will carry a 1.75 per cent interest coupon; the 90-day (three month) variety a 2 per cent interest rate; and the 180-day (six-month) bonds a 2.5 per cent interest rate.

Some $50 million will be available in each tranche in the first offering, which will be open for just two days - starting on July 22, and closing on July 23.

The Treasury Notes’ creation represents an effort by the Government to adopt a more proactive, innovative approach to its debt management and fund raising.

In so doing, and by using market mechanisms and Bahamian broker/dealers to help price its debt, the Government is aiming to reduce its debt servicing (interest) costs and therefore lower the burden on the taxpayer.

The initiative mirrors that of the Bahamas Government Stock (BGS) issues, which raised $200 million in longer-term financing for the Government over the past fiscal year.

The BGS is a replacement for the Bahamas Government Registered Stock (BGRS), just like the Treasury Notes are intended to be a replacement for the Treasury Bills. And both will be ‘dematerialised’, meaning holders of both BGS and Treasury Notes will no longer be issued with certificates as proof of ownership.

With more than $1 billion in surplus liquidity in the commercial banking system, both the Government and its advisers are again counting on the fact that there are numerous investment dollars still seeking a home for solid, low risk returns amid a low interest rate environment.

RoyalFidelity’s presentation reveals that the $100 million balance of the Treasury note funding will be spread out through the remainder of the next fiscal year, which closes at end-June 2016.

The next-largest tranche, some $45 million, will be issued to investors in January 2016, with other offerings ranging in size from $5 million to $20 million.

Overall, the Government is seeking to raise $75 million from both the 30-day and 1800-day Treasury notes over the next 12 months, with the 90-day notes raising $100 million.

The RoyalFidelity document obtained by Tribune Business shows that the interest rates for Treasury Notes will be set by the Government at the start of the fiscal year, and remain the same for the next 12 months.

Only Bahamian broker/dealers and commercial banks can participate in the offerings, with their customers subscribing for the short-term bonds via these institutions. Minimum subscription is set at 1,000 notes, or $1 million.

Unlike the BGS, the Treasury Notes will not be listed and traded on the Bahamas International Securities Exchange (BISX). They will instead be bought and sold on the over-the-counter (OTC) market at prices that will include interest earned.

RoyalFidelity said it will assume investors want to rollover their investment in Treasury notes into a new issue, of the same duration and maturity, once the existing one expires unless they receive a redemption notice five days beforehand.