By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Concerns were raised last night over investor appetite for the Government’s debt after just 25 percent of a recent $47.326m bond issue was picked up by the market.

The Central Bank’s website, showing the results of a BGR (Bahamas Government Registered) bond issue that closed on January 13, 2022, reveals that just $11.986m was purchased by investors across five tranches with varying maturity dates and interest rates.

Surprisingly, given that Bahamian institutional investors and high-net worth individuals have shown an increasing preference for the Government’s short-term paper in recent times, the greatest interest was shown in 30-year bonds where $7.452m of the total $24.326m made available was acquired by the market. That, though, is still less than one-third of what was offered.

Tribune Business’ attention was drawn to the Central Bank’s website by a well-placed financial industry source who, speaking on condition of anonymity, told this newspaper: “That gives you an indication of some people’s interest in picking up government debt.

“Some $47m in debt went out, and they only got $12m. The average yield has increased quite significantly. The Government does not want to acknowledge that the cost of its debt is going up.”

The source added that they were aware that some Bahamas-based financial institutions, as well as clients, were presently seeking to reduce their exposure to the Government’s debt and were selling-off some of their holdings while declining to participate in new issues and even rollovers of existing debt due to the perceived greater risk.

This comes after there were signs last year that the Government’s domestic financing sources may be tightening, when a $30m registered stock offering in August was only 40 percent subscribed, with just $12m taken up. The Central Bank picked up the outstanding $18m, but there are legal limits now constraining how much support it can actually provide to the Government.

The developments come as the Government faces having to redeem, or refinance/rollover, some $1.769bn in Bahamian dollar debt in 2022. That burden drops significantly thereafter, with redemptions of $348.1m and $309m in 2023 and 2024, respectively.

Meanwhile, market data provided by the Frankfurt stock exchange shows that the Government’s international foreign currency bonds are trading at a deep discount to their face value. The $825m bond placed at the height of the COVID-19 pandemic, carrying an 8.95 percent interest coupon, closed yesterday at an 11.69 percent discount to face value with a yield of 11.1166 percent.

And a $300m bond, placed in 2009 at a 6.95 percent interest rate and due to mature in 2029, closed at an 18.45 percent discount and yield of 10.7485 percent. Tribune Business was told this shows international investors are risk averse towards The Bahamas’ bonds, and that this nation would have to offer double-digit rates to attract them to any new capital raisings.

The Government, in its report released yesterday on the fiscal performance for the first six months of 2021-2022, said: “Public debt interest payments broadened by $56.6m (30.9 percent) to $239.8m, equating to 49.7 percent of the Budget, resulting from the elevated levels of borrowing since the onset of the COVID-19 pandemic.

“By currency, $118.5m (49.4 percent) represented payments on foreign currency obligations and $121.3m (50.6 percent) were for Bahamian debt transactions.” This gives an insight into the elevated debt servicing burden Bahamian taxpayers will have to carry as a result of the elevated borrowing triggered by Hurricane Dorian and COVID-19.

“Owing to continued improving fiscal conditions, government experienced a net deficit during the first six months of fiscal year 2021-2022 of $269m, a reduction in the deficit of $494m (67.1 percent) as compared to the same period in the prior fiscal year,” the report said.

“As a result, government contained the growth of net financing to $395.6m, an $803.2m (67 percent) decrease in the net liability growth of $1.199bn experienced in the same period of the prior year.

“To fulfill budgetary financing requirements as well as to settle maturing debt instruments, the Government utilised gross borrowings of $1.098bn as compared to $2.12bn in the same period of the prior fiscal year,” the document continued.

“Repayments of government debt were more muted at $702.7m compared to $921.3m in the same period of the prior year..... As a result of net borrowing activities, the direct charge on the Government - exclusive of exchange rate adjustments - increased by $395.6m to $10.318bn or 96.4 percent of GDP at end-December 2021, as compared to 100.2 percent of GDP at end-June 2021.”