T&T to issue US$500m sovereign bond

Accompanied by Central Bank Governor Jwala Rambarran, Finance Minister Larry Howai yesterday led a team of technocrats on a North American road show to promote the country’s first sovereign bond issue since 2007. The US$500 million eurobond is being arranged by Citigroup and government is planning to issue it this month. The bond will be priced much closer to the day of issue, Finance Ministry officials confirmed.

While there will be no carve out for the local market, T&T citizens will still be able to purchase the bond through local institutions that will have to buy the bonds from Citigroup. 

A bond is like a loan to a government or corporation usually to undertake major works, but sometimes to mop up excess liquidity—too much idle money in the banks. Bonds issued with the full faith and credit of the government are called “sovereign bonds” and are automatically rated by the international ratings agencies. Standard & Poor’s, one of the largest and oldest, has long maintained an AA rating on its assessment of T&T.

T&T is issuing the bond although it has more than US$9.4 billion in official foreign reserves and US$5 billion in the Heritage and Stabilisation Fund. A possible explanation could be that the Central Bank is concerned about the rate of depletion of T&T’s foreign reserves. However, the Central Bank referred all questions on the bonds to the Ministry of Finance and the Economy.

The bond is being issued on international capital markets, although T&T commercial banks are sitting down on US$3.8 billion in US-dollar deposits. By issuing it on the international capital market, T&T’s banks and insurance companies will be able to bid for the bonds, but T&T individuals will have to buy the bonds from these institutions.

The bonds are being issued in the context of the expectation that the US Federal Reserve will start to taper its quantitative easing in March next year. Yesterday, on news that the US gross domestic product (GDP) grew by 3.6 per cent in the third quarter (3Q) of 2013—more than analysts expected —markets reacted in anticipation that tapering is sure to happen. US stocks declined and the US dollar weakened against the euro.

Tapering, in layman’s terms means that the US version of a central bank (the Fed) had been pumping money into the US economy by voraciously buying back government securities from the public. Tapering will mean the Fed will slow down the rate at which it is buying back the government-issued instruments.

The US-dollar T&T sovereign bonds are expected to be issued by the government of T&T and not the Central Bank. Former Finance Minister Winston Dookeran had said in a March 2012 interview in Uruguay that the USD sovereign bonds would have been issued in September 2012.