Monday, March 25, 2019
By NEIL HARTNELL
Tribune Business Editor
The government last night said it “recognised the merits” of reform after the IMF revealed The Bahamas’ last US$750m sovereign bond issue did not meet evolving global standards.
KP Turnquest, deputy prime minister, told Tribune Business in a messaged response that the Minnis administration planned to take up the matter with its “legal advisers” to ensure the concerns raised by the International Monetary Fund (IMF) were “considered” in the government’s future international bond issues.
He spoke out after the fund, in a paper published last Thursday, revealed that The Bahamas was one of just five nations not to include “enhanced collective action clauses” or CACs in sovereign bond issues since late September 2017. Such clauses were omitted from the $750m US$ bond issue placed by The Bahamas in late 2017.
“Only a few issuers are not following the market trend,” the IMF revealed. “From end-September 2017 to end-October 2018, these issuers were The Bahamas and Lebanon under New York law, and Azerbaijan, Macedonia and Poland under English law.”
The fund’s paper added that, of 510 international sovereign bond issues worth a collective $620bn since October 1, 2014, some 88 percent contained enhanced CACs. “From end-September 2017 to end-October 2018, only 8 percent of issuances did not include enhanced CACs,” it said.
The Bahamas is included in the latter group, and Mr Turnquest confirmed that the Ministry of Finance had “taken note” of a clause that is designed to make it easier for countries to restructure their debt should the need arise.
CACs are designed to make it more difficult for one, or a small group of creditors, to “hold out” and prevent a country restructuring its national debt on more beneficial terms by refusing to sign off unless they receive payment in full.
Countries such as Argentina have fallen victim to such practices, and the current CAC standard overseen by the IMF allows a government to modify the terms of a particular bond or debt instrument once the restructuring receives support from creditors collectively holding 75 percent of the issue in question.
The standard also includes a simpler, more efficient voting mechanism for creditors to vote their acceptance or rejection, meaning CACs are designed as a tool to make debt restructurings easier for all countries.
“The Ministry of Finance has taken note of the IMF’s report on the inclusion of enhanced contractual provisions in international sovereign bond contracts,” Mr Turnquest told Tribune Business.
“The Government recognises the merits for the inclusion of super-majority provisions and modified clauses relative to how much one creditor is paid versus another.
“As we have witnessed in many sovereign debt restructuring exercises, which have given rise to these proposals, such exercises could be very protracted and disruptive at a time when a country is under severe fiscal pressures and can least afford additional ones.”
Confirming that the Government had taken heed of the IMF’s conclusions, Mr Turnquest added: “While we are committed to pursuing sound fiscal management that would make debt restructuring a remote possibility, these recommended provisions are reasonable from the standpoint of mitigating fiscal risks.
“Therefore we will be speaking with our legal advisors to ensure that these developments, which are receiving increased uptake in the sovereign bond market, are considered in future issuances.”
The IMF’s findings apply only to sovereign bond issued deemed to be “international” in nature, meaning that they are guaranteed by foreign law. The Bahamas’ last $750m bond issue was guaranteed under New York law, not Bahamian.