Benefits for bondholders from debt-for-climate deal – Straughn

Government bondholders will not face losses despite a new $600 million debt-for-climate swap deal with commercial banks, Minister in the Ministry of Finance Ryan Straughn assured Friday.

The arrangement, touted to deliver $300 million in savings, will involve buying back some of the most costly bonds, including those held by the National Insurance and Social Security Service (NISSS), without adding to the national debt burden, he said.

The bonds were issued in three categories: Series B for individuals, Series D for mixed entities, and Series E for the NISSS.

“The most expensive debt on our portfolio is Series E, which is at eight per cent right now,” said the finance minister on VOB’s Down to Brass Tacks call-in programme.

“Some of the other series… have different levels. I believe the Series D is 4.75, while the Series B is 4.25, speaking subject to correction. Approximately $400 million of the Series E is intended for buy-back as part of this deal… which means about $200 million is between Series B and Series D. What does that mean? It actually means that NIS is getting money. Unlike the previous scenario where NIS was unsure, and unclear as to whether they would get the money back that they were lending government, this actually gives the NIS cash.”

Straughn contended that the concerns Barbadians expressed over reforms last year have eased due to economic growth.

He said: “As part of what we are doing in this framework… under the last administration, there were literally no reserves to allow the NIS to invest abroad. So, as part of what we are doing here is twofold. We are paying back NIS early, they would have cash which they would then deploy elsewhere. They need long-term instruments to match their liabilities. We will be, as well, issuing some debentures to be able to utilise some of that.”

The administration has been working with the Central Bank to ensure the NISSS and other pension funds have access to more foreign exchange for overseas investments, he told the radio programme.

Straughn said: “To the extent that the [NISSS] and any other pension fund is given access to foreign exchange, which we do have right now to allow them to invest abroad, it means that the pension concerns that Barbadians had would not be the same level of concern, simply because NIS will have, for the first time in a while, the opportunity to invest substantively at home as well as abroad.”

Straughn dismissed the concerns about potential losses for bondholders under the new deal and highlighted potential benefits.

“The question here is, to be able to get the maximum savings to be able to finance the restructuring of the debt,” he said. “So, I will say to people, there will be other opportunities for investment; and therefore, there is really no disincentive for getting monies early in relation to where it is now; and therefore, reinvesting that in a subsequent issuance.

“Based on what we have done since the restructuring… we have restarted the treasury bill market. This part of this process is really to allow us to have debt issuance at various durations… such that the credit ratings and praise that we have gotten in recent times, would actually be beneficial to the country.”

He explained that the government is buying back debt and reissuing it at a fixed 3.25 per cent interest rate.

The minister said that achieving maximum savings is critical to funding key water and sewerage infrastructure projects, including upgrades to the South Coast Sewage Plant, a solar photovoltaic facility, and a pipeline for water delivery to support food security initiatives.

“The average person who may be holding a bond, may not wish to go to the stock exchange,” he said, “and as you know, you will get a cheaper discount. And therefore, the fact that we have provided an opportunity for persons to trade into their reverse option, actually makes it easier in relation to if persons want to be able to get money soon.”

Insisting that bondholders would not be penalised, Straughn said that if the bonds matured as originally planned in 15 years, they would be paid in full.

emmanueljoseph@barbadostoday.bb