Nadaleen Singh

The coupon or 4.5 per cent in­ter­est rate ob­tained from Gov­ern­ment's US$1 bil­lion ten-year bond is a "pos­i­tive de­vel­op­ment," RBC Roy­al Bank said in a state­ment to the T&T Guardian.

"Con­sid­er­ing the Moody's rat­ing, the size of the is­sue, the cur­rent oil price sce­nario, and that the Gov­ern­ment ini­tial­ly ex­pect­ed to pay a coupon around 4.625 per cent, the fact that they land­ed on 4.5 per cent based on 3.5 times over­sub­scrip­tion, could be seen as a pos­i­tive de­vel­op­ment. Our in­for­ma­tion tells us that lo­cal ac­counts re­ceived on av­er­age 20 per cent of their ex­pect­ed or­ders. This will lead to fair­ly ac­tive sec­ondary mar­ket trad­ing as lo­cal in­vestors try to se­cure more of the bond.

"Ac­cord­ing to Cen­tral Bank sta­tis­tics, gross pub­lic sec­tor debt out­stand­ing stood at $108.7 bil­lion in March 2016, which is 60.5 per cent of GDP, which is al­ready over the debt sus­tain­abil­i­ty thresh­old. This means that each ad­di­tion­al dol­lar of debt ac­tu­al­ly has a neg­a­tive im­pact on growth.

"Add to this the US$1.0 bil­lion or rough­ly $6.7 bil­lion, and US$300 mil­lion from CAF, and $3.0 bil­lion cur­rent­ly be­ing raised do­mes­ti­cal­ly–this gives rough­ly a to­tal of about $120 bil­lion–an in­crease of 10.4 per cent in four months over the March 2016 to­tal."

The bank warned of "pos­si­ble neg­a­tive rat­ings im­pli­ca­tions from this steep in­crease in debt, com­bined with the draw­down on the Her­itage and Sta­bil­i­sa­tion Fund, and the cur­rent eco­nom­ic con­trac­tion.

"How­ev­er, the fact that the Gov­ern­ment was able to raise these funds be­fore any down­grade, par­tic­u­lar­ly from Moody's, in­to non-in­vest­ment grade ter­ri­to­ry, could be con­sid­ered a pro-ac­tive and pos­i­tive de­vel­op­ment."

Specif­i­cal­ly on the in­vest­ment rat­ing for the bond, RBC said the the rat­ing as­signed by Moody's for the bond of Baa3 with a neg­a­tive out­look the low­est in­vest­ment grade rat­ing. Any low­er and it would be con­sid­ered non-in­vest­ment grade or junk.

The bank sug­gest­ed that the funds be used for cap­i­tal spend­ing.

"The Gov­ern­ment stat­ed that the pro­ceeds of this bond will be used for the de­vel­op­ment pro­gramme over the cur­rent and 2016-17 fis­cal years, but it is un­clear what spe­cif­ic projects these funds have been ear­marked for. As­sum­ing that these funds would be used for cap­i­tal spend­ing in any event, this would be con­sid­ered pos­i­tive, but not so if used to fi­nance re­cur­rent ex­pen­di­ture," RBC said.