In the space of 11 months, that is from September 19, 2008, to this week, the Government of Trinidad and Tobago and state-owned enterprises borrowed $12.2 billion by issuing bonds on the local and international capital markets. Of that amount, the Government borrowed $2.18 billion in its own name in three issues:
�2 A seven-year bond raised $280 million in June with a yield-to-maturity of 5.85 per cent. This bond attracted $1.039 billion in bids, which the Central Bank in its notice described as "well received.";
�2 An 11-year, $600 million bond with a yield of 6.4 per cent was under-subscribed and raised $368.5 million on June 26.
�2 A 15-year bond issued in April with a yield-to-maturity of 7.75 per cent raised $1.5 billion, although total bids were received for $2.6 billion.
On the other hand, the following state-owned companies issued bonds worth about $10 billion: The Government borrowed US$400 million ($2.5 billion) from China's EXIM bank at what was described as a concessional rate to build the 125,000 metric tonne per year Alutrint aluminium smelter at La Brea in southern Trinidad. According to a report on the BNamericas wire service in May, Alutrint manager of communications and community relations Josieann Richards said a condition of the loan was that the Government should hire the Chinese contractor CMEC to provide labour and technology for the plant.
�2 Petrotrin floated a ten-year, US$850 million ($5.4 billion) bond on August 11 in New York which was priced to yield 9.875 per cent. This bond attracted bids of US$5 billion, according to international wire service reports;
�2 Nipdec raised $682 million through a 13-year, 6.8 per cent bond in July. The bond was over-subscribed with the total bids received amounting to $1.085 billion;
n The Water and Sewerage Authority raised $300 million in a five-year, 6.3 per cent bond in June. The WASA bond received bids amounting to $993 million and due to the response of the market, the bond was allotted at a premium, offering investors a yield of 5.95 per cent;
�2 The Housing Development Corporation raised $500 million in February with a 15-year bond which was issued at par with a yield-to-maturity of 8.25 per cent. The bond was over-subscribed with total bids received amounting to $878 million.
�2 The Housing Development Corporation also raised $700 million in a 15-year bond which was issued at par with a yield to maturity of 8.7 per cent although bids amounting to $1.056 billion were received.
What is one to conclude from this information?
First, that state-owned companies have dominated borrowing or bond issuance in the last 11 months;
Second, that most of the bonds issued by the Government and the state-owned enterprises or loans taken in the 2009 fiscal year have been project related and that the Government has not issued a bond for the express purpose of deficit financing as yet.
Third, although a conservative estimate of the Central Government's fiscal deficit for the 2009 fiscal year is $6 billion, it has only raised $2.1 billion of this estimated amount thus far with only six weeks of the fiscal year remaining;
Fourth, that the previously stated estimate of the Central Government's fiscal deficit for the 12-month period ending September 30, 2009 DOES NOT include the $1.2 billion that the Government forwarded to Clico shortly after the insurance company collapsed at the end of January or the $3.8 billion that the Government has committed to lavishing on the insurance company;
Fifth, that given the highly liquid state of the local financial system and the paucity of private sector capital market issues, there is overwhelming demand by local financial institutions for Government and Government-guaranteed bonds.
Sixth, that the demand for Government and Government-guaranteed paper is coming mostly from institutions which submit competitive bids that is a bid price at which the institution is willing to buy the security and not from individuals who mostly submit non-competitive bids in which the purchaser agrees to accept the price determined in the auction. Competitive bids comprised about 98 per cent of the $1.5 billion raised by the Government in april.
Seventh, that because the Government and state agencies have been so active in the local bond market, the Central Bank has not needed to issue liquidity absorption bonds in the 2009 fiscal year as it was forced to do in the three previous years. For example, the Central Bank issued $1.2 billion in nine-year liquidity bonds in 2008 paying a rate of 8.25 per cent. Eighth, that the Government seems to have a preference to raise TT dollars on the local market and US dollars on the international capital market.
This is despite the fact that there are billions of US dollars domiciled in local banks and financial institutions which are currently receiving interest rates of less than two per cent.
These locally-domiciled US dollar accounts would have welcomed the opportunity to purchase the Petrotrin bond with a yield-to-maturity of 9.875 per cent but were denied because most of the potential purchasers were not on the brokers' lists.
But the most fundamental point is this: Are the Government and the state-owned enterprises engaging in a careful and systematic programme of borrowing with a watchful eye always on the ability of the economy to repay and the burden that servicing debt will place on the fiscal accounts going forward? Or have the state enterprises been given free reign to borrow as much as they want at whatever over-inflated terms some clever investment banker convinces the executives are most appropriate? Is anyone in the Government thinking about these issues?