Apr 2009 Financial News

New bond issue generates over $1b

Apr 22, 2009

Government's latest bond issue is expected to raise about $1.5 billion to finance a number of State projects this year.

The bond issue expired yesterday and the auction was said to have easily exceeded the $1 billion mark, financial sources told the Business Express.

Government proposed to raise $1 billion or as much as $1.5 billion through the issue of the 15-year bonds with a coupon rate of 7.75 per cent per annum.

It was the first central government bond issue for fiscal 2008/2009 and was issued to "finance Government's capital investment", an information memorandum on the issue stated last week.

Previous bonds have been oversubscribed as anxious investors tried to cash in on what are generally considered safe investments.

The new bonds were issued through the automated auction system operated by the Central Bank. A single price auction system was used and the auctioned opened on April 7 and closed at 1 p.m. yesterday.

Issued under the Development Loans Act, the bonds are being issued to finance the State's capital investment.

"The Government is also mindful of its role in the development of the local capital market and, in particular, the development of the Government bond market," the information memorandum stated. "To this end, it continues to provide securities that will cater to the needs of all investors."

The Central Bank was appointed as the sole and exclusive agent for the raising and management of bonds with Republic Bank Trust and Asset Management Division serving as trustee for the bondholders of this issue.

Applications were made through designated Government securities intermediaries including CMMB, Citicorp Merchant Bank, First Citizens Merchant Bank, RBTT Merchant Bank and Scotia Trust and Merchant Bank.

Applications had to be made in $1,000 face values and the maximum non-competitive bid had to have a face value of $100,000.

The latest bond comes at a time when Government has suggested turning to deficit financing in light of declining oil and gas revenues.

Analysts suggested last week that areas the Government might do well to focus on with the capital raised from this bond would be stimulate the manufacturing and agricultural sectors as crude revenues have continued to suffer in recent months.

In the information memorandum, it was pointed out that the debt of GDP ratio for Trinidad and Tobago at the end of 2008 was 39 per cent and the gross public debt stock, which comprises the debt of central government, statutory authorities and State enterprises, increased from $49.6 billion in 2007 to $59.3 billion in fiscal 2008.

At the end of 2008, the domestic component of central government debt amounted to $32.5 billion, compared to $24.3 billion at the end of the previous year.

The information memorandum also noted that against the backdrop of a swiftly slowing international economy, the local economy "held its own", growing by 3.5 per cent in 2008 compared to 5.5 per cent in the previous year.

The sharp slowdown in global growth has dampened consumer and business optimism and is leading to a broad-based softening in domestic economic activity, the Central bank noted in its latest Repo rate statement earlier this month.

"With energy prices and global aggregate demand projected to remain depressed for several months, consumers and business firms have become somewhat more cautious about the outlook for the domestic economy in 2009. Accordingly, many local firms are in the process of re-evaluating their spending plans and cutting costs," the Central Bank said.

Central Bank Governor Ewart Williams recently lauded the decision by Prime Minister Patrick Manning to use deficit financing to cushion Government's revenue shortfall.

"Trinidad and Tobago is in a position to deal with a small financing deficit. I think the decision is a right one, since there was enough liquidity in the system to finance bond issues without increasing the domestic interest," Williams said.

Manning, in a statement in the House of Representatives said Government had decided on a two-pronged approach to deal with the economic situation.

Manning also said that while Government had considerable savings in the Heritage and Stabilisation Fund, which now stood at an estimated $12.8 billion, it would not dip into this fund to finance the billion dollar shortfall.


Source:
Curtis Rampersad
Trinidad Express
Wednesday April 22, 2009

http://www.trinidadexpress.com/index.pl/article_business_mag?id=161467737