• Chair confident B$ portion ‘fully subscribed’

• Consumers get ‘larger cushion’ than thought

• Chair: ‘Good progress’ in Shell negotiations

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Power & Light’s (BPL) chairman yesterday voiced confidence that local investors will “fully subscribe” for the $85m portion of its upcoming bond issue that will be placed in this nation.

Dr Donovan Moxey told Tribune Business that the state-owned utility monopoly’s $535m Rate Reduction Bond (RRB) represents “a great opportunity” for Bahamian institutional investors and their clients given that the interest rate coupon will likely match what is offered to their international counterparts.

Historically, capital raisings featuring both a Bahamian dollar and US dollar component have contained two separate coupons or interest rate returns - one for the US dollar tranche, and another for the Bahamian dollar portion that is typically lower. However, Dr Moxey confirmed that BPL’s bond will offer the same rate on both the Bahamian dollar and US dollar components.

“That’s the target,” he replied, when questioned by this newspaper about this. The BPL chairman said that while the utility and its advisers are seeking between $75m-$85m from the Bahamian capital markets, with up to $450m raised internationally, the former sum could be increased if there was sufficient local investor appetite.

“The number is more like $75m-$85m,” Dr Moxey said of the Bahamian target. “Obviously if there’s large local appetite we will certainly increase that number. Right now the target is $75m-$85m that’s available to them.

“That amount is based on what the local placement agents and brokers think the Bahamian market can absorb locally. It should be fully subscribed, and is a great opportunity for local investors. It’s targeted at what we call qualified investors, for the most part institutions. High net worth individuals qualify through their brokers as well.”

While Bahamian retail investors will be unable to participate directly, many will do so indirectly via pension funds, credit unions, mutual/investment funds and the like. Dr Moxey said it was “tough to give a definitive answer” on the interest rate that will be offered to investors presently, as BPL’s placement agents - Citibank and CIBC FirstCaribbean - were still negotiating this with the markets.

“When we did the initial modelling for the RRB it was between 7.5-8 percent,” he added. “That’s the modelling we had put forward and are looking at targeting, but these coupons are driven by market forces. We’ll negotiate to get as close to that as we possibly can; to those rates we were modelling.”

Some observers will be sceptical that BPL will be able to achieve those rates, given its questionable operational and financial track record; COVID-19’s impact on the global capital markets and the Government’s recent sovereign creditworthiness downgrades.

The Government’s last foreign currency borrowing, of $225m in early December 2020, attracted an 8 percent interest coupon, which was down from the 9.25 percent it obtained on a $600m issue just two months earlier, indicating that The Bahamas’ sovereign borrowing costs might have started to stabilise.

The interest rate BPL obtains will also be critical to its business and household customers, as this will determine the size of the extra charge that will be added to their monthly bill - the so-called National Utility Investment charge - that will go towards repaying interest and principal to the bond investors.

Dr Moxey said BPL, though, had already “created a larger cushion” for customers than anticipated to minimise this impact by reducing the fuel charge component of customer bills to 10.5 cents per kilowatt hour (KWh). The RRB modelling had predicted this would be 12.5 cents per KWh, so BPL was “in a pretty good place with respect to the impact on customer bills”.

The BPL chairman added that the energy supplier was also aiming to keep the National Utility Investment charge at a sum equivalent to 15 percent of existing monthly consumption, adding that VAT was not included in the past two years.

Proceeds from the bond offer will restructure BPL’s balance sheet and finances, will also enabling it to upgrade critical infrastructure. An additional 90 Mega Watts (MW) that will take Clifton Pier and New Providence’s “base load generation” to 220 MW will be in place by the 2022 third quarter once the $70m-$80m ‘Station D’ is constructed.

With Clifton Pier resuming its role as BPL’s chief power generating station, BPL plans to construct a new $40-$50m sub-station in the area by the second quarter of 2022 to handle “the significant capacity” coming from that station.

The utility also expects to complete the roll-out of its $30m nationwide AMI (Advanced Metering Infrastructure) by next year’s fourth quarter, having already selected the supplier and the network design for New Providence. AMI will place control of consumption and billing back in the hands of consumers, while also enabling BPL to better manage a grid and transmission and distribution (T&D) infrastructure that has been made “smarter”.

Elsewhere, Dr Moxey yesterday said BPL was continuing talks with Shell North America on outsourcing New Providence’s base load energy generation and fuel supply despite the latter’s exclusivity and Memorandum of Understanding (MoU) expiring last year.

“We’re still continuing on,” he told Tribune Business. “We made significant progress these last two years, and are continuing on to see how quickly we can get the deal closed. All I can say is that we’re continuing to negotiate with Shell and are making pretty good progress.

“I can’t get into specifics on pricing and cost, but we’re focused on doing it as quickly as we possibly can. We are engaged and working as fast as we can to get this deal finished up.”

The Shell North America deal will see the energy giant acquire from BPL some 220 Mega Watts (MW) of generation assets that have been built, or are due to shortly be constructed, at Clifton Pier. A liquefied natural gas (LNG) regasification terminal was to be located nearby to provide fuel to the plant, which would have sold electricity to BPL via a 20-25-year power purchase agreement (PPA).

The key terms will be the PPA, setting out the price at which BPL will buy electricity from Shell’s new power plant, and the asset purchase agreement detailing the price and mechanism by which the energy giant will acquire ‘Station A’ and ‘Station D’ at Clifton Pier from the state-owned energy monopoly. Those two ‘stations’ will form the new plant.