BETWEEN July 2018 and June 2020, the central government and state-owned enterprises raised $ 30.59 billion in local and international bond markets, according to my calculations and based on information from the July Central Bank Economic Bulletins. 2020 and July 2019 (see details in the box). ).
Of these $ 30.59 billion, 37 of the bond issues were made through primary private placements in the domestic bond market, one was an international offering and only three were considered public, i.e. say accessible to anyone in Trinidad and Tobago who wished to invest. (A private placement may involve a competitive process to identify a bond arranger, who is then responsible for raising funds for distribution to less than 50 institutions or high net worth individuals)
The three tranches of National Investment Fund (NIF) bonds, with a total face value of $ 4 billion, were the only bond issues directly accessible to members of the public.
The above analysis means that over the two-year period July 2018 to June 2020, 87% of funds raised by central government and state-owned enterprises came from primary private placements in national bond markets. and international, with only 13% coming from a public bond issue. (During this two-year period, the government would also have had access to loans from local commercial banks, bilateral funding from foreign governments or state agencies, funds from international agencies, and withdrawals. funds from the Heritage and Stabilization Fund).
So the question is: why has the finance ministry chosen over and over again to raise funds through private placements rather than offering these same bond opportunities directly to members of the public?
One of my brilliant investor friends suggested to me that the Ministry of Finance had gone for private placements because of the timeliness and the speed. In other words, the ministry can send out a request for proposals to raise funds to all financial institutions in the country and set a deadline for the government to access the funds within four to six weeks.
Public bond offers can take three to six months from the announcement of the issue to bank funds.
But the fact that a public bond lasts longer than a private placement should not prevent the Ministry of Finance from ensuring that at least one bond issue in each financial year is public.
If the government knows that its projected budget deficit for 2021 is $ 8.2 billion, or about $ 2 billion per quarter, finance ministry technocrats can certainly now plan to issue a $ 2 billion government bond. during the third quarter of the current fiscal year. from April 1 to June 30, 2021. It would be useful for these technocrats to recall that NIF bonds attracted subscriptions of $ 7.3 billion for bonds worth $ 4 billion in 2018. This means that the NIF bonds were 82% oversubscribed. This is a testament to the huge appetite for well-marketed and competitively priced government or enterprise bonds offered directly to the public.
Mr Imbert should be aware that in these brutal economic times, many people are desperate for a return on their investment above the 1.5% offered by UTC’s TT dollar Income Fund, which now has more than 12%. billions of dollars. in assets under management.
He may also wish to ask himself why the DSS and other similar financial programs have been able to attract millions of dollars from ordinary workers in these difficult times and whether the Government is partly to blame for encouraging people to seek this fictitious income, for most participants, by its inability to offer alternative investment possibilities.
In theory, another possible advantage of private placement of bonds in the domestic market is that competition between financial institutions can lead to more favorable interest rates offered to government and public enterprises.
It’s possible. But it is also possible that the lack of transparency of these private placements could lead to unsavory market practices and distortions, which would be unlikely with a public bond.
It was this lack of transparency in bond issues offered by the central government and state-owned enterprises that forced Mr. Imbert to call two press conferences in seven months specifically to respond to allegations that the finance ministry is promoting the BCN Global Finance in the allocation of mandates to be lifted. funds.
At the second such press conference, held on October 29, Mr. Imbert revealed that NCB Global Finance – whose CEO is Angus Young, the brother of National Security Minister Stuart Young – does only managed to get warrants to raise $ 2.6 billion out of the $ 70.8. billion issued by central government and state-owned enterprises between September 2015 and September 2020.
But Mr. Imbert was then asked, by the author of this comment, the following question:
Q: If there are issues regarding the transparency of government fundraising, why does the finance ministry not publish requests for proposals (RFPs) and loan mandate results so that everyone can see what was requested and the result this request?
A: I would have to seek advice on this. This could fall into the realm of confidential banking information. You know, with the banks, there is a specific confidentiality regime. So I will seek advice on this.
“I can say categorically that when we look at each of them, based on the factors that I have described here – the effective interest rate; fee structure; total cost; Internal rate of return and net present value is what determines who wins.
“If I can publish all the offers – some of them can also be trade secrets and the banks may not want people to know what they are offering – but I will seek advice.”
On September 20, 2019, it was acceptable for Mr. Imbert to publicly disclose to Parliament the names and major financial proposals of the three companies shortlisted to acquire the Pointe-à-Pierre refinery and business assets. Why does the minister need to seek legal advice on the acceptability of providing the same level of detail regarding financial institutions attempting to raise funds for central government and state enterprises?
If the finance ministry made public bond offerings the rule, rather than the exception, the process would be completely transparent and not subject to these ongoing legal allegations or maneuvers.