The recently announced Tobago House of Assembly $164.175 Million Bond is being seen as promising news for Tobago, but some are questioning the lack of information concerning its agency.
The bond is a fixed rate Bond with a tenor of six years and attracts semi-annual interest payments of 5.2 per cent. In announcing the bond last Friday, it was also revealed that the interest on this be due and payable bi-annually while the principal will become due in full at the end of the term of the Bond in six years, 2027.
When asked about the bond, Deputy Chief Secretary and Secretary of Finance and the Economy at Division of Finance and the Economy, Tobago House of Assembly said he was confident that the terms of the bond were “reasonable.”
“Prior to the issuance of the Bond the THA engaged in a Road Show as a soft market sounding exercise engaging several financial institutions to gauge their sweet spot as it relates to the tenor and interest rate. The responses were reviewed and benchmarked against recent issues by the Government of the Republic of Trinidad and Tobago,” he said, explaining that they reviewed several proposals from financial institutions before making their decision.
“Against this backdrop, the Executive Council approved the appointment of First Citizens for the formal placement of the Assembly’s Bond given their diligence in ensuring the best possible rate to the Assembly. The Division of Finance and the Economy worked diligently with the Ministry of Finance and First Citizens Bank to ensure that terms and conditions were competitive and comparable to Bonds issued by the GORTT. We are, therefore confident that the interest rate on this Bond is reasonable,” he said.
As for if the bond would contribute to the government’s contingent liability, Jack said, “This Bond issue is without a Sovereign Guarantee and is based primarily on the Assembly’s own credit worthiness. The Assembly has a standalone rating from the Moody’s Rating Agency.”
Funding for bond he said would come from the THA’s Parliamentary Appropriation as well as THA generated receipts.
He said however the THA would, “continue to employ stringent measures to ensure that the debt is serviced from its available resources.”
Jack added that the semi-annual interest payments and the final payment at the end of the Bond term will be accounted for and paid under two separate lines already established. A provision will also be made annually over the life of the Bond to treat with the final payment.
The Bond was announced to aid with infrastructural development of Tobago, but it could be the first of many used to fund projects in the pipeline for the THA.
Jack said in order to treat with the perennial shortfall for funding the Assembly’s Development Programme, as Secretary of Finance and the Economy he presented a proposal for consideration by the Executive Council to implement a suite of alternative financing mechanisms in order to accelerate Tobago’s developmental momentum.
“This policy direction was reviewed and approved by the Executive Council and the issuance of the Assembly’s maiden Bond is one of the mediums that will be used to ensure that development projects on the island are not stymied.” The Finance Secretary assured.
He said the Assembly will consider additional transactions, and consistent with this inaugural Bond, such transactions will be undertaken in keeping with the requisite statutory obligations and within a prudent debt management framework in order to facilitate the Assembly’s programmes of economic expansion and diversification.
Jack said that the use of these facilities will mobilise resources and technical support to supplement capital expenditure “in order to advance the island’s development agenda.”
He explained with the growing need to improve Tobago’s infrastructure as well as the tourism sector and agricultural and agro processing sectors as well as other facets of Tobago which could encourage diversification, sourcing these funds became more imperative.
“Funds from these undertakings will be utilised to facilitate economic growth and expansion and advance economic diversification. Now more than ever Tobago must position itself to withstand national and external shocks, and to allow for a more resilient Tobago economy,” he said, “As such, the supplemental funding coupled with the technical assistance from our Multi-lateral partners will ensure that we build a platform for sustainable growth which places the island on a path of recovery in the shortest possible time.”
Economist Dr Vanus James said that most recognise that Tobago desperately needs to grow its stock of capital in order to increase its growth and development rate and escape its current excessive dependence on transfers from Trinidad. He said that this option of seeking funding was available 25 years ago, but it was only being utilised now.
He was wary that announcement did not speak on any contingent liabilities of the Bond for T&T.
Dr James said, “Surely, investment in Tobago is risky business but the Executive Council has not reported any associated contingency that is likely and the amount of the liability that can be reasonably expected. The requirement under Section 51 A of THA Act 40 of 1996 that the Minister of Finance must approve it makes any Tobago borrowing a direct liability of T&T. Provisions will have to be made in the national budget for payment of the associated obligations.”
This is at odds with Jack’s assertion that it does not increase the country’s contingent liability since according to Jack the loan was borrowed on Tobago’s own credit worthiness and has no government guarantee.
James also noted the announcement was “significantly light on details about the investment programme.”
“We are told it comprises priority projects inclusive of Housing, Health and Coastal Infrastructure.” No other credible detailed prospectus has been released on the specific investment plan linked to the bond financing, the returns expected, and how these returns stack up against the applicable standards identified,” he said, “On the face of it, the people of Tobago and Trinidad deserve far more information than a terse press release in order to judge whether the investment costs are justified and whether their monies are being properly spent. However, they have no way to get such information at this time.”
However senior lecturer in banking & finance, department of management studies at the University of the West Indies Prakash Ramlakhan was a bit more optimistic concerning the announcement of the bond.
“We don’t know what they are going to use the funds for, but it is a substantial amount that can make a difference in the infrastructural development of Tobago,” he said, stressing that it would depend on if the funds are widely used.
He said with the Central Government’s support, the interest rate was reasonably attractive as he believed the government would not allow the THA to default.
Ramlakhan said this bond would be the first of many which could potentially increase the independence of the THA.
“I think it is developing a certain amount of independence but it has to be deeper than that. You have to bring about some fiscal responsibility, in that you are raising the money. What are you going to use the money for, and how are you going to repay the bonds,” he said.