By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The Prime Minister yesterday said Rothschild and Co will focus on “creating more [fiscal] headroom” for The Bahamas but emphasised this does not involve a restructuring of the country’s $11.8bn national debt.

Philip Davis QC confirmed that the financial advisory group, which has some 3,800 employees spread across 40 countries, has been hired to help create fiscal breathing space for the Government by reducing the cost of its debt and smoothing out any bunching of principal repayments.

Tribune Business exclusively revealed this week that Rothschild and Co had been engaged by the Government to advise on how to handle the country’s $11.8bn debt, in the wake of the blow-out produced by COVID-19 and Hurricane Dorian, but Mr Davis said debt restructuring was not part of the strategy.

He said: “They’re not restructuring the Government’s debt. They were engaged to assist us in looking at the profile of our debts, with a view of seeing how best we can not just meet our obligations, but see how best we could respond to dealing with creating more headroom for the country to be able to move ahead.”

This newspaper was told that Rothschild & Co, in its capacity as the Government’s independent debt adviser, will have multiple tasks and responsibilities. These include “figuring out how to manage” The Bahamas’ international foreign currency debt exposure, both reducing the cost (interest payments) on outstanding bonds and minimising the rates demanded by investors on future issues.

Its executives will also be charged with selling The Bahamas’ post-COVID recovery progress to the international markets amid the belief that this will be more credible coming from Rothschild & Co, which knows the investors and players as a participant itself, than the Government. “They speak to each other and speak the same language,” one contact said of Rothschild and the global markets.

Another added: “I think they’ve retained Rothschild & Co to help them figure out how to manage their international debt exposure. At the moment, it’s about advising how to potentially reduce the cost of future debt if they have to go to market to raise more as well as help them manage the existing debt in terms of the credit rating so they improve the cost of funds and value of bonds on the international market.

“They are supposed to help the Government figure out how to minimise the cost, and the best way for how to structure it, with regard to the existing debt and maturities. I do think the Government is positioning itself so they can approach the international markets, whether the multilaterals or anyone else, so that they have more substance to go and negotiate.

Another source added that Rothschild & Co will also be “advising on the messaging” that The Bahamas delivers to the global capital markets and investors about the pace of its COVID recovery.

“There’s also a perception that The Bahamas’ position is seemingly not fully understood in the international community, the capital markets,” they added. “The rate of a recovery of a tourist destination 40 minutes from Miami is a lot quicker than Barbados, which relies more heavily on UK visitors, and other parts of the Caribbean. The Bahamas is closer to the US and well-known.

“What we take for granted in terms of knowledge of the place, that is not necessarily known by some hedge fund or pension fund. They want to know how you are going to pay me back or my clients. They want to know the chances of recovery for foreign currency inflows.

“They speak to each other; they speak the same language,” the source said of Rothschild and the global capital markets. “We felt they can carry the message with a little more credibility. There is the old Bahamian saying: ‘A fisherman never says his fish are stink’.”

Tribune Business reported that Rothschild & Co’s hiring could ultimately lead to a major “refinancing” of the Government’s debt, but this is different from a “restructuring” which Mr Davis ruled out. For example, rather than issue new sovereign debt, the Government could seek to consolidate existing bond issues via a collective multi-billion refinancing that would help establish “a benchmark yield” for all Bahamas issues traded on the international capital markets.

Mr Davis did not go into any detail on how Rothschild will be creating more fiscal space, but increasing revenue will be one component of reining in - then eliminating - the annual fiscal deficit.