Aug 2018 Financial News

Young "NIF bond oversubscribed"

Aug 10, 2018

THE National Investment Fund Holdings Company Ltd (NHFHCL) bond offering came to a close last night with the news from Communications Minister Stuart Young that it was oversubscribed.

“I think we are looking at a serious oversubscription,” Young said at yesterday’s post-Cabinet news briefing, held at the Diplomatic Centre, St Ann’s.

The tax-free bonds went on sale on July 11. They were issued in three series:

5-year bonds at 4.5 per cent interest,
12-year bonds at 5.7 per cent interest
20-year bonds at 6.6 per cent interest

Young confirmed that all categories were “going to end up oversubscribed”. Asked whether an extension would
be considered, he indicated that this was not necessary. “We’ve had it open for a month now. It’s been a good month. We’ve put resources behind it. We hope all who were serious and wanted to have participated,” he stated.

NIFHCL was formed as a vehicle to monetise some assets recovered from the 2009 CLICO bailout. The bond offering was described by Finance Minister Colm Imber as a gift to keep on giving to the people of Trinidad and Tobago, from whom $23 billion in tax dollars was injected into the collapsed conglomerate. Government aimed to raise $4 billion through offer of the bonds, which will be used as financing for the 2018 budget.

Economists: It was expected
Economist Indera Sagewan-Alli and Dr Vaalmiki Arjoon said the oversubscription of the bond offering came as no surprise to them. “This was very much expected and this was largely because there are so many limited savings options that are available.

When you look at the bank savings, even long-term fixed deposits in the banking system, the interest rate is negligible while the returns on the NIF bonds were favourable, with the lowest one being 4.5 per cent,” Sagewan-Alli
said. “Therefore people are looking for opportunities because they are not getting anything from banks,” she added. 

Arjoon said the announcement by Young was positive news as it meant that investors realised there was another outlet in the financial market they were able to take advantage, which gave a higher rate of returns than banks. “Another positive I see coming out of this is that it’s one step further in diversifying the financial market, especially the capital market. The capital market would have grown from this,” he pointed out, adding that he hoped to see the bonds
traded in the capital market in the future.    

Arjoon said, though, that given that the bonds were oversubscribed, there was an element of systemic risk that investors had to keep a keen eye on. “If the fund were to perform poorly in the future, then many investors (both individual and institutional) can lose their monies invested, as the bond interest and principal payments might not be paid in this instance. In such a case, those investors who placed a substantial part of their savings with the fund will find themselves in serious financial problems,” he said.

He continued: “Small and medium sized companies who invested in the fund may very well have to downsize or close. This begs the question—what measures are being put into place to protect these investors against such a systemic risk, especially for longer investment taken (12 and 20 years)?”


Source:
Trinidad Express Newspaper
Friday August 10, 2018