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US$550m bond will drive up T&T’s debt

Sunday, December 15, 2013

The historic US$550 million bond that the government of T&T placed on international capital markets on Wednesday evening will drive up this country’s external debt, a leading economist has said. “Domestic debt is roughly $26 billion whereas external debt is less than half that much, at $11 billion equivalent. Domestic debt has been rising steadily, while external debt has been fairly stable for some time,” RBC Caribbean Group economist Marla Dukharan said hours before government listed the securities.



 In an e-mail reply to a Sunday Guardian query, she said: “The government is about to issue a US$500 million bond, which will drive up the external debt component. These figures account for central government debt only, and do not include the debts of state enterprises/contingent liabilities which are also guaranteed by the central government.”


The US$550 million bond was announced on Bloomberg in New York on Wednesday at around 6 pm. Citigroup is managing the bond sale. The bonds were listed as a “private placement” and will not be managed by the Central Bank of T&T. 



At around 6 pm on Wednesday, the government of T&T announced through Bloomberg that it is selling US$550 million in ten-year bonds through Citigroup, with a 4.375 per cent coupon. This means that every year for ten years, bondholders will be paid 4.375 per cent on every US$100 of bonds they buy. The first coupon date is July 16, 2014. At the end of the ten years, upon maturity, investors will be repaid the sum they invested in the bonds.


The ten-year bonds’ maturity date is January 16, 2024.Their settlement date—the date by which buyers must pay for the bonds—is December 16. The bonds are non-callable. A callable bond is one with a “call provision” that allows the issuer to repurchase or redeem it by a specified date. As callable securities are exposed to the risk of being repurchased, they are usually cheaper than comparable bonds. The bond was said to offer a higher yield than interest rates at local and US banks.


In a statement, the Ministry of Finance and the Economy said: “This is not the first occasion that the Republic of T&T has accessed the international markets and the Republic currently has two outstanding international bonds: a US$250 million bond due 2020, and a US$150 million bond due 2027.”


The statement said Finance Minister Larry Howai and senior officials of the ministry and the Central Bank left the country on December 5, “to conduct roadshows targeted toward potential institutional investors in major financial centres in the United States and London. The objective of the roadshows would be to broaden the potential investor base for the bond and set the stage for the transaction by highlighting the positive economic performance of T&T, and the country’s many attributes in a quality-focused market.”


The bond “is part of the financing for the 2014 Budget and proceeds would be utilised to support the government’s operations during fiscal year 2014”, the ministry said. Without giving specifics, it added that a “provision has also been made for a portion of the budget to be financed on the local market as well; several major project financings have also been earmarked for the domestic market during the year.”


The Ministry of Finance said it considered “it prudent at this time to raise funds in the international market since current market conditions present the government with a timely opportunity to access the international debt market, where low United States treasuries and yields presents potentially attractive financing opportunities for emerging markets.”


The ministry said T&T “currently enjoys investment grade ratings of “A” by Standard and Poor’s and “Baa1” by Moody’s. On both Standard & Poor’s and Moody’s, ratings go from AAA (the highest) to lower letters signifying lower ratings.


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