NEW QUESTIONS are being asked about the $1.5 billion bond that NCB Global Finance Ltd, the 100 per cent owned subsidiary of Jamaica’s NCB Financial Group, raised for the Government on March 16.
Opposition Leader, Kamla Persad-Bissessar, has made the family connection between CEO of NCB Global Finance, Angus Young, and his elder brother, National Security Minister Stuart Young, the focus of the general election campaign of the United National Congress (UNC).
Addressing her party’s supporters at the Union Claxton Bay Secondary School on March 9, Persad-Bissessar spent 16 minutes of her 48-minute speech at the UNC’s Monday night forum, questioning eight financing transactions for State entities, including the National Insurance Board, that NCB Global Finance under Angus Young, has won in the last four years.
But fresh issues are being raised by financial industry insiders about the $1.5 billion bond, which has a term of 20 years and carries a fixed interest rate of 5.74 per cent per annum. That means the Government must pay $86.1 million a year for the next 20 years to the bondholders or a total of $1.722 billion in interest over the life of the bond.
The issues include that, in its Request for Proposals for the $1.5 billion bond, the Ministry of Finance may have deviated from established practice by omitting some of the traditional bidders for the mandate to raise money for the Government. Inviting all of the market players ensures efficient and competitive bidding and the best price and terms for the Government, the industry insiders argued.
It was also stated that it is normal practice with the Government’s sovereign bonds that they close within ten days (two weeks), as administrations are always on tight deadline to get bond funds.
The RFP for the $1.5 billion, 20-year bond, which is the largest and longest TT-dollar bond issued by the current administration, was issued on January 31, 2020 and bidders were required to submit their bond proposal packages by the February 7, 2020 deadline. NCB Global Finance was informed in writing of being awarded the mandate on the evening of February 13, 2020.
NCB Financial Group, the Jamaica-based parent company of NCB Global Finance, announced success in closing the bond transaction on March 16.
Questiioned on if it is the normal practice that Government sovereign bonds close within ten days, NCB said: “NCBGF is not privy to all details concerning all past Government borrowings. Our experience is that sometimes the RFP will state a specific date as to when the Ministry of Finance requires to be funded. This was not the case for the RFP that was issued on January 31, 2020. NCBGF closed this transaction in 22 working days. We have noticed that at some financial institutions, it takes longer to close on a vehicle loan or a home mortgage.”
Angus Young said the company’s bid for the bond did not receive favoured treatment as “our business wins are entirely based on the strength of the entity and our Group, the quality of our service offerings, and the intelligence, creativity and sheer hard work of our team members.”
NCBFG, the parent company, also pointed out that the fact that it took 22 days to raise the bond funds was not an indication that NCB Global Finance had issues raising the money. They said: “There was no funding issue. Although NCBGF bid on a fully underwritten basis, the bond issue was fully subscribed on the issue date.
“NCBGF is part of NCB Financial Group with assets of US$12 billion and a presence throughout the region. NCBGF is the direct subsidiary of NCB Capital Markets that has closed approximately US$2.5 billion in capital markets and structured finance transactions throughout the region.
“NCBGF and the wider NCB Group therefore have both the expertise and access to the funding to execute these types of transactions competitively, without needing any special accommodations to allow us to do so.”
On the issue of the subscription to the $1.5 billion bond, Express Business understands that Guardian Holdings Ltd (GHL), which is 62 per cent owned by the NCB Financial Group, purchased about $800 million of the bond, more than 50 per cent of the issue. About $700 million went to Guardian Life of the Caribbean and the rest for segregated pension funds and Guardian Asset Management.
A Guardian Holdings insider said that the entire insurance industry has been lobbying the Ministry of Finance for years to issue long-dated paper.
“Our liabilities go out over 30 years but the Government tends to issue ten or 15 year paper. The shortage of long paper causes an imbalance between the duration of our assets and our liabilities. The Ministry of Finance listened to us and issued long-dated paper about two years ago (the NIF bond) but so many institutions wanted that paper that our appetite was not satisfied.
“When this issue came to the market we saw it as a rare opportunity to get long-dated paper hence our large participation. Were it shorter duration paper our appetite would have been much smaller.”
Last Friday morning, Express Business submitted questions to the permanent secretary in the Ministry of Finance, Vishnu Dhanpaul, on if it is the ministry’s normal practice to invite all the players in the financial market to bid for bond RFPs and whether the ministry normally specifies a date on which it expects to receive bond funds. Up to Monday night, Dhanpaul had not responded or acknowledged receipt.
The same questions were sent to Minister in the Ministry of Finance, Allyson West, also on Friday. West responded to say that she was in meetings all of Friday in Tobago on the coronavirus relief measures, but that she would have sent the emailed questions to Dhanpaul and to Minister of Finance, Colm Imbert.
Imbert responds at March 10 news conference
While there was no response to the process questions from the Ministry of Finance, on March 10, Imbert held a news conference at his office at which the issue of the Government’s relationship with NCB Global Finance was raised. The news conference was held on the day after Persad-Bissessar’s Claxton Bay speech.
Speaking generally about the process, Imbert said: “The Government borrows from the commercial banks: We borrow from Scotiabank, Republic Bank, Royal Bank, First Citizens Bank FirstCaribbean, ANSA Merchant Bank and NCB Global (Finance).”
In beginning his response, Imbert said he continued to be amazed by the things Persad-Bissessar says because “when we go out for an RFP, it is on a competitive basis,” with the Government looking to get the “best offer,” which would be the lowest interest rate among all the competing banks.” Imbert referred to the interest rate as the “primary thing” in bond issues, but he said “there are other little things that you need to look at,” such as the commitment fee and legal fees.
The Minister said the technocrats at the Ministry of Finance “do an entire model of the whole thing and you see what the value of this loan is, based on the offers from all of the banks” and make their recommendation based on the most competitive offer.
Imbert also told the news conference: “So when the Government borrows from Scotiabank or Republic Bank, we borrow from the bank. So the Government has borrowed from NCB, not from Angus Young. That is the absurdity of what the Leader of the Opposition is saying. Angus Young is just an employee of NCB, he does not own NCB. NCB is majority owned by Michael Lee-Chin. Angus Young just works there....
“So how on earth could an entity that owns a majority of GHL and has over $80 billion in assets be incapable of lending the Government $100 million. And how on earth could an entity that is owned by a Jamaican billionaire benefit the brother of a Cabinet minister? It’s nonsense and I don’t know why the Opposition Leader continues along this line. Maybe she thinks it will sink in when she says it over and over to her supporters. But it is all nonsense.”