The Ministry of Finance has decided not to award the mandate to raise $125 million to NCB Global Finance, despite that company having the most competitive bid.
NCB Global Finance is a local company whose chief executive is Angus Young, the brother of Stuart Young, the Minister of National Security.
Last Thursday, addressing a virtual political meeting, leader of the Opposition, Kamla Persad-Bissessar said NCB Global Finance would make a profit of $2 billion for arranging loans and bonds of various terms for central government and state enterprises worth an estimated $2.5 billion.
At the virtual meeting, Persad-Bissessar held up a Cabinet Note from May 21, 2020, which revealed that 11 financial institutions were invited to bid for the mandate to raise the $125 million for the Ministry of Finance, on behalf of WASA.
The financial institutions were asked to submit proposals for a fully underwritten, fixed-rate loan with a term of eight years and with a bullet payment of $125 million at maturity.
The proceeds of the loan were meant to refinance Tranche 1 of WASA’s three-tranche bond that was due to mature yesterday, June 3, 2020.
The Cabinet Note revealed that although 11 financial institutions were invited to bid, only four responded to the Request for Proposals (RFP). The four that responded were Republic Bank, Scotiabank, NCB Global Finance and ANSA Merchant Bank.
Republic Bank and Scotiabank “indicated that they were not in a position to provide the financing structure outlined in the RFP,” according to the Cabinet Note. Only NCB Global Finance and ANSA Merchant submitted proposals.
ANSA Merchant submitted three options: a fixed-rate loan; a floating-rate loan and a variable-rate loan. The Ministry of Finance disqualified ANSA Merchant’s floating rate and variable rate loan options from its analysis because “they were not in alignment with the requested parameters of the RFP.” ANSA Merchant’s fixed-rate option was 7.2 per cent, according to the Cabinet Note.
NCB Global Finance only submitted a fixed-rate option, tendering at 6 per cent compared with ANSA Merchant’s 7.2 per cent. NCB Global Finance’s bid would have meant the Government paying $7.5 million in interest payments a year or $60 million in interest over eight years. ANSA Merchant’s bid would have meant $9 million in interest payments a year or $72 million over eight years.
While the Ministry of Finance’s RFP requested that the bids be submitted on a fully underwritten basis, neither of NCB Global Finance nor ANSA Merchant did so, according to the Cabinet Note.
But the Note stated: “It should be noted that NCBGF was the only financial institution that explicitly proposed to fully underwrite a portion of the full amount, $90 million,” out of the $125 million. NCB Global Finance said it would use its best efforts to raise the $35 million balance.
In explaining the difference between fully underwritten and best efforts, the Ministry of Finance said: “In the former, the financial institution guarantees that the Government would receive the full sum of $125 million upon execution of the relevant documents.
“Conversely, under a best efforts basis, the financial institution undertakes to make its ‘best efforts’ to raise the money from investors. Recent experience with this methodology indicates that there is a possibility that the institution may fall short of the target amount and may require additional time to raise the initially unsubscribed amount.”
Questioned at a news conference on March 10 about allegations made by Persad-Bissessar the previous night, Finance Minister Colm Imbert said the Government uses interest rate as the primary factor in choosing the most competitive bid when raising funds on the local capital market.
Imbert said: “When we go out for an RFP, it is on a competitive basis. So for example when a bank is selected to lend money to the Government, it’s based on the best offer.
“So, as I said, we look at the interest that they would offer. That’s the primary thing, whether they offer it at four per cent, five per cent et cetera. That’s the first thing the Government would look at, because when you are working out whether you should select one bank over another, you have to figure out how much it would cost you.
“So let’s say you are borrowing $100 million. If someone lends you that at five per cent, that would cost you $5 million a year.
“If someone else lends you at 4 per cent that would cost you $4 million a year.
“So the four per cent interest rate is obviously better.
“But then there are other little things you need to look at. They are going to charge what is called a commitment fee; they are going to charge you legal fees for preparing the documents and so on.
“So you do an entire model of the whole thing and see what the value of this loan is based on the offers from all the banks.”