Government’s move to float a $2.5 billion bond issue shortly before the October 1 presentation of the 2012-2013 budget means Government is seeking funding for commitments for which it has no resources, says former finance minister Conrad Enill. “It’s not a position you will like to be in,” Enill added. Government issued notice of the 15-year bond issue in an advertisement last Sunday. It is the second Government bond issue for 2011-2012. It carries a coupon rate of 5.20 per cent an annum. Central Bank, acting as agent for the bond issue, began the auction system for the issue yesterday. The issue closes at 1 pm on September 25. Bonds will be dated September 27.
The ad stated the bond was to settle “outstanding Government liabilities.” Despite calls by the Clico Policyholders Group to clear the air on the purpose of the bond, Finance Minister Larry Howai was unavailable yesterday, as he was said to be in a meeting and did not reply to calls on what such liabilities were or if they were related to payments for Clico depositors. The bond is being issued under the Development Loans Act (71-04). This allows for financing of general development, repayment of borrowing effective for general development by a statutory authority or by an enterprise that is controlled by or on behalf of the state. In the 2011-2012 budget speech, then Minister Winston Dookeran said concerning the budget’s $7.6 billion deficit, that 52.7 per cent of the financing requirement would be met by domestic sources, with the remainder from external sources, including multi-lateral financial agencies. Government officials recently said that included bond issues.
On the move towards the $2.5 billion bond, Enill said: “A bond issue means they are looking for money which they do not have to support expenditure. They have commitments for which they have no resources. “This tells me if you are raising bonds to pay recurrent expenditure, then you are borrowing to live and the revenue for your expenditure is not there. That’s not a position you will like to be in.” Enill said the bond isssue could have been set up months ago. He added: “They are clearly trying to settle outstanding liabilities for the rest of this year and if they did not do this, they will create serious problems for themselves and the country for the next year.
“I expect the Finance Minister accounting for revenue under his control will say in the budget what his bond will be used for. “One good thing I notice is they are using the auction system set up by PNM, geared for transparency.” The Clico Policyholders Group’s Peter Permell said: “This is only the second bond issue for the year as the local bond market has been relatively subdued due to the dearth of public GORTT bond auctions. “One would recall the first bond issue was a $339 million National Insurance Property Development Co Ltd (Nipdec) bond, offered on August 22, 2012, to finance the implementation of Phase II of the Motor Vehicle Authority of T&T Project.
The issue was significantly oversubscribed by approximately 6.3 times with the total bids received totaling to $2.1 billion. He added: “Unlike the previous bond and others before it, no specific purpose is given for this bond issue. The bond will be also issued on September 27, just ahead of the upcoming budget and three days before the end of fiscal year 2011-2012. “This is one day before the deadline date for policyholders to accept Government’s revised offer. “It’s being issued at a time when we have been calling for Government to make good on its year-old promise to pay policyholders, dollar for dollar, on the last ten years of their bondsm, via the establishment of the Clico investment fund, NEL 2.” He also said Howai had acknowledged there were legal issues with the establishment of NEL 2, into which the Republic Bank shares would be placed.