BOB unveils $30m New Year ‘bail out’

Tuesday, January 3, 2017

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas has unveiled the second phase of its recapitalisation plan by launching a $30 million convertible bond issue, producing more scepticism from its weary minority shareholders.

The BISX-listed institution, in newspaper advertisements placed late last week, said it would be selling the Convertible Capital Bonds in three $10 million tranches, with the first placed on New Year’s Eve.

Capital markets sources, speaking on condition of anonymity, told Tribune Business that the bonds’ pricing, issue timing and lack of timely disclosure by the Bank of the Bahamas all suggested that the Government was likely to take up the entire $30 million.

The bonds carry a 3.125 per cent interest coupon, which is a full percentage point below the new 4.25 per cent Bahamian Prime rate.

The low yield/return on the bonds fails to sufficiently compensate investors for the risk they are taking in investing in Bank of the Bahamas debt securities, given that the institution has racked up almost $120 million in total losses over the past three years.

The 3.125 per cent rate is fixed, and the bonds “perpetual”, meaning that the investor compensation will not change over the lifetime of the bonds, although they could be converted to equity in Bank of the Bahamas at some stage.

Capital market analysts, meanwhile, were also surprised that the first $10 million tranche was to be placed on New Year’s Eve, which was a Saturday - and not on a weekday, which is the norm for most issues.

The Bank of the Bahamas bonds are also being issued through private placement to “accredited investors only”, although their identity is not defined in the scant information made available to the market.

The private placement document, containing all necessary financial information for investors to make a decision, “will be distributed by invitation only” - adding to the secrecy surrounding the issue.

The timing of the last two tranches’ placement, on January 30 and February 28, 2017, respectively, only adds to the impression that the Government will pick up the entire $30 million issue.

The month-end placements appear timed to coincide with when it has gained its monthly Value-Added Tax (VAT) revenues, which now have to be paid 21 days from the previous month’s end.

“The pricing on the security is at a level where the market will not participate,” one capital markets source told Tribune Business, speaking on condition of anonymity.

“It’s a very unattractively priced security in the market, understanding where Bank of the Bahamas is, and the timing of the offering. By implication, the Government has no intention of anyone else subscribing.

“This is a last-minute issue to meet the Central Bank’s requirements in terms of capital, and they have to find some way of raising the $10 million.”

Should the Government take up the entire private placement, it will have pumped a further $70 million into Bank of the Bahamas, once the recent $40 million rights issue is taken into consideration.

The latter placement was funded by converting $40 million worth of deposits the Government held with Bank of the Bahamas into equity, and a similar operation is likely with these three bond tranches.

The capital markets source, though, complained that Bank of the Bahamas had failed - as a publicly listed and traded company - to provide sufficient notice of the bond offering, given that it was a material development.

“As a public company, there really ought to be some notice,” they told Tribune Business. “This is being run as a non-public company, with the Government treating it as our bank and doing what they want.

“It’s a major material event for the company, and notice should have been given a few days before. You have this responsibility as a public company to disclose information, and why should they not have to meet the same regulations. It just makes a mockery of the whole situation.”

The convertible bond issue had long been flagged, having been mentioned at Bank of the Bahamas’ annual general meeting (AGM) last year, and also referenced in Standard & Poor’s (S&P) recent downgrade report. No date, though, had been set for it.

Minority shareholders, ground down by the massive reduction in their investment’s value, said the latest $30 million issue represented a continuing taxpayer bail-out of the troubled commercial bank.

Dionisio D’Aguilar, a shareholder and the FNM’s candidate for Montagu, told Tribune Business: “The Government can say whatever they want, but they’re bailing out the bank.

“The Government, over a period of time, has put $150 million into that bank. It continues, and will probably continue indefinitely.”

Apart from the injection of $100 million worth of ‘government paper’ in October 2014 to shore up Bank of the Bahamas’ balance sheet, Mr D’Aguilar said the ‘bail out’ had started before that when the Treasury and National Insurance Board (NIB) increased their combined equity stake from 51 per cent to 65 per cent.

“It pales in comparison to BEC, and is falling under the radar because not everyone needs it, but it’s costing the Bahamian taxpayer hundreds of millions of dollars,” Mr D’Aguilar told Tribune Business.

“It’s no wonder we got downgraded. It’s sucking up hundreds of millions of dollars in revenue, and the Government should bring this whole sorry episode to an end by getting out of the banking business and selling it.

“It obviously has some value, but it’s becoming less and less. If you look at the balance sheet, it’s becoming smaller and smaller.”

Mike Lightbourn, president of Coldwell Banker Lightbourn Realty, questioned where the Government was finding the money for the Bank of the Bahamas bonds from, given its obvious cash flow difficulties.

“I just don’t see where they’re getting all this money, as there’s a complete shortage everywhere else,” he told Tribune Business.

“They’re just going deeper into the hole. I don’t understand it. What can I say? It’s just getting worse and worse.”

Comments

BahamaPundit says...

Oh please. Wake me up when BOB has been liquidated.

Posted 3 January 2017, 4:36 p.m. Suggest removal

observer2 says...

BahamaPundit, BoB can't be liquidated otherwise the webshops will go back underground as there will be no "legitimate" correspondent bank for them.

I say correspondent because the webshops are mopping up missing links in our financial system. Inter-island transfers, 24/7 banking services, loans at resonable rates, branches in every settlement, international transfers, speculative investments etc. etc.

Posted 3 January 2017, 4:53 p.m. Suggest removal

Greentea says...

So they are the new banking system that Bank of the Bahamas grandfathers? Didn't Flowers apply for a banking license a long time ago and got denied? Say what you want but I am beginning to think he needs to teach some business classes at UoB. The man aint no fool.

Posted 3 January 2017, 6:20 p.m. Suggest removal

Greentea, no need for Flowers to own a bank, so long as he can correspond with a bank that has legitimate correspondents to the global financial system. Enter BoB.

Posted 3 January 2017, 7:28 p.m. Suggest removal

The government is not bailing out BoB, it is bailing in the Bahamian public. So where are these funds coming from at such attractive borrowing rates? From you and me via NIA or the Public Treasury.

In the meantime BoB continues to be the only bank providing banking services to the web shops. Which continues to endanger our correspondent banking system through which we trade globally.

No need to worry about a devaluation if you trading via correspondents becomes challenging as more and more correspondents withdraw their services.

75 cents at Sawgrass will look good once as the correspondence leave.

Any commission of enquiry as to what is causing this continued need for cash infusions at BoB? How much are we up to now? Almost $200 million in bail ins? How much more do we have to go? Find out what the balance of loans receivables is versus government deposits? $X00 million?

Posted 3 January 2017, 4:45 p.m. Suggest removal

Gotoutintime says...

If anyone buys these bonds they will realize what they deserve---Nothing!!

Posted 3 January 2017, 5:40 p.m. Suggest removal

Goto, if you are a Bahamian citizen you have already bought the bonds, as NIA or the Treasury will subscribe to the entire issuance. Guess whoes on tape for the government....you and me.

Posted 3 January 2017, 7:30 p.m. Suggest removal

Observer--Not if I left the Bahamas over 20 years ago!!

Posted 4 January 2017, 3:33 p.m. Suggest removal

ThisIsOurs says...

Has anyone asked Gowen Bowe about what's happening set BOB? It would be interesting to hear his take on why it's not time to panic yet.

Posted 3 January 2017, 9:26 p.m. Suggest removal

Porcupine says...

It is time to panic.
They seem to be telling everyone who is paying attention that they should get their money out of BOB as quickly as possible.
The entire government of the Bahamas should resign.
What is happening at BOB is nothing less than fraud.

Posted 4 January 2017, 5:35 a.m. Suggest removal

Well_mudda_take_sic says...

Christie, Halkitis, John Rolle (and Wendy Craigg before him), Keith Davis, Tonya Galanis (and Owen before her), every current director of BOB (especially Richard Demeritte), Paul McWeeney, and so on, are all guilty of massive fraud in the corrupt lending practices of BOB, the cover up of the crimes committed and the illegal sustained use of public (taxpayer) funds, as well as the funds of National Insurance contributors, to continue the cover up of the crimes at bankrupt BOB. All concerned have known for several years now (including S&P, Moody's, IDB, World Bank and IMF) that BOB will never ever be financially viable again.

Posted 4 January 2017, 8:26 a.m. Suggest removal

**AS A REMINDER**: The references below to Sean McWeeney and his brother Paul McWeeney are all we need to know about the McWeeney family. Articles published in The Punch in December 2013 informed the Bahamian public that Bank of The Bahamas (BOB) had made the following loans and advances connected to political friends and cronies of Perry Christie:

• $28 million to Leslie Miller and/or entities owned by him and/or members of his immediate family.
• $3.5 million to Obie Wilchcombe & Pleasant Bridgewater re. Universal Distributors Bahamas Ltd., a company apparently now defunct for all intents and purposes.
• $8 million to another senior PLP cabinet minister, rumoured to be pudgy with short stubby grubby dirty sticky fingers.
• $6.3 million to PLP business woman Patricia Mortimer who purportedly is a best friend and business partner of Lady Poodling and the owner of several shops at Nassau International Airport.
• $2.3 million re. GEMS Radio Station which at the time was owned by Debbie Bartlett and Cyprianna McWeeney, the latter being the wife of PLP lawyer Sean McWeeney who is the brother of Paul McWeeney.
• $4.5 million to enterprises owned/controlled by Edward Penn.
• $4.6 million to Phil Lightbourne re. Phil's Food Services (Phil Lightbourne was the front man and spokesman for Ben Frisch who owned Bahamas Food Services up until the PM allowed the Frisch Family to sell it to Sysco Foods (a large U.S. public company) in April 2013.

Keep in mind that BOB is majority owned and controlled by the Bahamas government; accordingly its overall affairs fall directly within the portfolio of Christie as both PM and Minister of Finance. Most, if not all, of the loans and advances mentioned above had to be fully provided for by BOB, and likely have since been either written off by BOB or transferred to Bahamas Resolve at great cost to hard working honest Bahamian taxpayers. Small wonder that, notwithstanding the mega millions in taxpayers’ funds required to bail out BOB, Perry Christie was only too quick to come to the defense of Paul McWeeney (brother of Sean McWeeney) for having so handsomely rewarded the PM's political friends and business cronies!

No doubt Christie was inclined to contact certain members of BOB’s board of directors and senior management in order to press for the making of loans and advances on very generous terms to his political friends and business cronies that should never have been made. All of these shenanigans on the part of Perry Christie clearly evidence that he has a very twisted moral compass by any standard. It is therefore absolutely frightening to think that this warped man still has cabinet responsibility as both PM and Minister of Finance for our country's financial affairs.

Posted 4 January 2017, 8:37 a.m. Suggest removal

John says...

Whoever wins the next election will have lots of dirty nasty work to clean up. They will have to do lots of heavy lifting. In fact during their first 3 years in office they will look lost and appear to be making matters worse. That's how deep the pile is. But of course if the PLP wins they will continue to pile sh!t on top of the heap. You know what happens to sh!t when it is piled too high?

Posted 4 January 2017, 10:30 a.m. Suggest removal

bogart says...

Quite transparent that all political aspirants comprising of seasoned business persons, doctors, lawyers etc are not immediately calling for a public inquiry to look into this continuous drain of the hardworking voters money and want to be first elected to run the billion dollar Bahamian economy and dealings with our trading partners like the United States. If political aspirants cannot see that something needs fixing with BoB then heaven help us all.

Posted 5 January 2017, 8:27 a.m. Suggest removal