The Bahamas has closed on a $500 million 10-year commercial loan leveraging a policy-based Inter-American Development Bank (IDB) guarantee the government has announced, with a well-known banker noting that its announcement lacked several vital details such as the interest rate and condition of the guarantee.
Gowon Bowe, the Fidelity Bank (Bahamas) chief executive, told, “I think it’s a good thing in terms of securing the financing, but we are missing a great deal regarding what the terms are.”
Last Friday, the government announced what it described as a “landmark transaction” and the country’s largest credit-enhanced financing on the international loan market to date.
“This transaction, being the first of its kind for IDB, demonstrates The Bahamas’ strong commitment to the diversification of financing sources towards semi-concessional financing and blended finance solutions collaborating with the private sector. Additionally, the transaction is supportive of The Bahamas’ external funding pipeline, representing over 50 percent of external borrowing requirements for Fiscal Year 2023-24, and will fund eligible budgetary expenses, such as infrastructure, education, and social welfare projects. The execution of transactions with innovative credit enhancement structures is expected to provide a solid anchor to The Bahamas’ medium-term external funding plan,” the Ministry of Finance said in a statement.
“The transaction’s credit-enhanced structure allowed The Bahamas to secure favorable financing terms, considerably more advantageous than those available on the international bond market. The IDB’s first-loss Policy-Based Guarantee will initially cover up to 40 percent of the scheduled principal and related interest, having allowed the IDB to develop an innovative structure with a multiplicator effect in which through a partial risk assumption, the private sector, led by (Banco) Santander, is able to lend a much larger nominal amount.
“As a result, The Bahamas secured significant savings compared to market cost of funding at the time of transaction closing. This structure will advance the country’s objective of reducing debt service costs, extending maturities and tapping new liquidity pools as outlined by the Medium-Term Debt Strategy and Annual Borrowing Plan for Fiscal Year 2023/24.”
The Bahamas intends to capitalize on the success of this credit-enhanced financing and the approved second tranche of the IDB guarantee for up to $200 million to deploy its blended finance agenda through a second transaction over the course of Fiscal Year 2023/24.
Bowe noted: “Integrity in reporting is essential. When examining this statement,I would criticize it for resembling more of a public relations release rather than one that is high in integrity and provides direct information. The use of a guarantee should not be glorified as a demonstration of stability but rather be seen for what it is. The Bahamas, as a member of the IDB, has experienced an expansion of its debt during COVID and it will take some time to return to its stable platform.
“The use of an IDB instrument like this is certainly to be positively observed by the citizenry because it means the government has availed itself of all available facilities. It also allows us to demonstrate that while we use the guarantee to secure the level of funding and interest rates that have been achieved, we can show that we don’t need the guarantee because it’s never called.”
He added: “Integrity in the reporting lacking because key details were not reported. What are the interest rates? We got more favorable rates than bond capital markets but that doesn’t tell me what the interest is. What are the conditions of the guarantee? This is not to say that there is misinformation or disinformation but we shouldn’t use the information on fiscal matters as a public relations exercise. People should know what you have committed to. If we are going to brag about securing the level of funding, let’s be clear about what it means.”
