Investors are being encouraged not to halt their investment due to fear of uncertainty in the Barbados economy as Government restructures its massive debt.
The call came from Vice President and Country Head of Royal Fidelity (Barbados) Ltd Jillian Nunes, who pointed out that once the Government’s debt restructuring programme was completed “we will be able to move forward without this threat of a default hanging over our heads.
“I think now that we are here it sends the message that we know we had an issue and we are taking decisive measures to fix it. This creates an atmosphere that is a lot lighter and brighter and I think investors can be a bit more optimistic again,” said Nunes.
She was addressing the annual Royal Fidelity investor forum at the Hilton resort on Thursday under the theme, Proceed with Caution – Investing in Uncertain Times.
“As investors we need to ensure that we position ourselves appropriately, not just for today but for tomorrow. Our message to you is do not become immobilized by fear or uncertainty. The important thing is to stay diversified and focus on your long-term goals,” said Nunes.
“I think Barbados is at an inflection point – this event [restructuring] I believe is the point we will look back and say ‘this is where our direction changed, this is the event that hopefully allows us to breathe and grow again,” she said.
She told the audience that the present financial climate in Barbados was “ideal for privatization” of some state-owned enterprises, which could lead to “future listings and investment opportunities for the public.
“We will have to wait and see if that is an option for the present Government, but we remain poised to take advantage should any of these opportunities present themselves and
appear attractive, and we will encourage others to do the same as these kinds of opportunities don’t occur very often,” she added.
Highlighting Government’s debt restructuring exercise for local creditors, the investment management specialist said while it seemed pretty straight forward and there was relief that there would be no haircut on principal, bondholders would still incur a loss.
“An individual for example, who is reliant on interest income of 7 per cent, now has to adjust to a rate of one per cent in the first instance, moving up three per cent,” she pointed out.
“Similarly, a bank or an insurance company will likely adjust fees and rates to reflect their reduction in interest income. Just sticking with the example of a pensioner, someone who retires today and goes to purchase an annuity from an insurance company will be buying an annuity based on reduced rates ultimately earning him a lower monthly pension than his counterpart who purchased an annuity a month ago for the same dollar amount,” she explained.
Earlier this week, the Central Bank announced that the thousands or Barbadians holding Government debentures, treasury bills and notes and other loans and bonds owed by Government or state enterprises totalling more than $6 billion, would be exchanged for new government paper. This does not include savings bonds.
Under the plan, holders of those instruments would receive payments over a longer period.
Governor of the Central Bank of Barbados Cleviston Haynes said letters have already been sent to the bondholders with the terms of exchange and they have until 5 p.m. on October 5 to agree with or reject the offer.
On the issue of privatization, Managing Director and Emerging Market Sovereign Analyst at Oppenheimer, Nathalie Marshik questioned why it seemed such a bad word, though pointing out that Barbados was not the only country reluctant to privatize some state entities.
“Privatization for some reason, is a bad word, and it shouldn’t be. It feels like you are selling your asset in a fire sale. Yes, international investors are going to come in and look at the books, they are going to open everything, they want to understand whether or not that’s going to make money . . . and if they don’t think they are going to be able to recover the investment very fast they are not going to want to pay too much, that is simple math,” she explained.