For the first time in a long time, a Government bond issue has been undersubscribed and even the Central Bank believes that the First Citizens offer, which closes tomorrow is the cause.The $1 billion Government bond, which offered investors a return of 2.5 per cent a year for ten years, was intended to assist in domestic liquidity management through the sterilisation of the bond proceeds at the Central Bank.
In a statement on its Web site, the Central Bank said the bond was unsubscribed "primarily due to an alternative investment product being offered simultaneously to investors" which was taken to be a reference to the First Citizens initial public offering of 48,495,665 shares at $22 a share for members of the public.The bond's issue date was August 6.
Although the amount offered was $1 billion, bids supplied to the Central Bank amounted to $895.2 million and the total amount allocated was $559.2 million.Institutional investors, such as pension plans and mutual funds, normally dominate Government bond issues.This week's bond issue is the second time in four months that the Government has issued bonds in order to mop up excess liquidity.
On May 21, Government issued a $1 billion seven-year, 2.6 per cent bond, which received bids totalling $2.75 billion. The bond was alloted at a premium, clearing at $104.23 per $100 face value and offered investors a yield to maturity of 1.95 per cent.The August 6 bond was issued at par.The relative lack of interest by T&T's institutional investors in the Government bond is because pension plans, credit unions, mutual funds and the National Insurance Board have collectively been offered 60 per cent of the First Citizens shares on offer.
This means, said financial sources, that institutional investors may have held back from a Government bond paying 2.6 per cent in favour of shares in the Government-owned bank with an indicative dividend yield of 4.75 per cent.