BETWEEN July 2018 and June 2020, the central government and State enterprises raised $30.59 billion on the local and international bond markets, by my calculations, and based on information in the Central Bank’s Economic Bulletins for July 2020 and July 2019. (See details in box).
Of that $30.59 billion, 37 of the bond offerings were done through private, primary placements on the domestic bond market, one was an international offer and just three were considered public, meaning available to anyone in Trinidad and Tobago who cared to invest. (A private placement may involve a competitive process to identify a bond arranger, who is then responsible for raising funds for distribution to fewer than 50 institutions or high net worth individuals)
The three tranches of National Investment Fund (NIF) bonds, which had a total face value of $4 billion, were the only bond offerings that were directly available to members of the public.
The above analysis means in the two-year period from July 2018 to June 2020, 87 per cent of the money raised by the central government and State enterprises came from private, primary placements on the domestic and international bond markets, with just 13 per cent coming from a public bond issue. (In that two-year period, the Government would also have accessed loans from local commercial banks, bilateral funding from foreign governments or State agencies, monies from international agencies and withdrawn monies from the Heritage and Stabilisation Fund).
So, the question is this: why has the Ministry of Finance time and time again in the period since September 2015 chosen to raise funding through private placements rather than offering those same bond opportunities directly to members of the public?
One of my brilliant investment friends suggested to me that the Ministry of Finance has opted for private placements because of expediency and speed. In other words, the ministry can send out a Request for Proposals to raise funds to all of the country’s financial institutions and can set a deadline so that the Government has access to the funds within four to six weeks.
Public bond offers may take three to six months from the announcement of the issue to the funds in the bank.
But the fact that a public bond takes longer than a private placement should not prevent the Ministry of Finance from ensuring that at least one of the bond issues every fiscal year is public.
If the Government knows that its projected fiscal deficit for 2021 is $8.2 billion, or about $2 billion a quarter, surely the Ministry of Finance technocrats can plan now to issue a public bond for $2 billion in the third fiscal quarter of the current fiscal year—from April 1 to June 30, 2021. It would be useful for those technocrats to recall that the NIF bonds attracted subscriptions of $7.3 billion for bonds worth $4 billion in 2018. That means the NIF bonds were oversubscribed by 82 per cent. That is testament to the huge appetite for well marketed, competitively priced Government or State enterprise bonds offered directly to the population.
Mr Imbert should be cognizant of the fact that in these brutal economic times, many people are desperately looking for a return on their investment that is higher than the 1.5 per cent offered by the UTC’s TT dollar Income Fund, which now has more than $12 billion in assets under management.
He may also wish to ponder why DSS, and other similar financial schemes, have been able to attract millions of dollars from ordinary working people at this time of hardship and whether the Government is partially culpable in encouraging the population to seek out these fictitious returns, for most participants, by its failure to offer alternative investment possibilities.
In theory, another possible advantage of the private placement of bonds on the domestic market is that competition among financial institutions may lead to more favourable rates of interest offered to the Government and State enterprises.
That is possible. But it is also possible that the lack of transparency in these private placements could lead to unsavoury market practices and distortions, which would be unlikely with a public bond.
It is this lack of transparency in the bond issues offered by central government and State enterprises that has forced Mr Imbert to call two news conferences in seven months specifically to address allegations that the Ministry of Finance favours NCB Global Finance in the award of mandates to raise funds.
At the second such news conference, which was held on October 29, Mr Imbert revealed that NCB Global Finance—whose CEO is Angus Young, the brother of National Security Minister Stuart Young—was only successful in receiving mandates to raise $2.6 billion of the $70.8 billion issued by the central government and State enterprises between September 2015 and September 2020.
But Mr Imbert was then asked, by the author of this commentary, the following question:
Q: If there are issues about the transparency of the Government raising funds, why doesn’t the Ministry of Finance publish the Requests for Proposals (RFPs) and the results of the loan mandates so that everybody can see what was requested and the outcome of that request?
A: I would have to get advice on that. That might fall into the realm of confidential banking information. You know with banks, there is a particular regime in terms of confidentiality. So I will seek advice on that.
“I can say categorically that when we look at every single one of them, based on the factors that I have outlined here—effective interest rate; fee structure; total cost; internal rate of return and net present value—that that is what determines who wins.
“Whether I can publish all of the bids—some of these may be trade secrets as well and the banks may not want people to know what they are bidding—but I will seek advice.”
On September 20, 2019, it was acceptable for Mr Imbert to make a public disclosure in Parliament providing the names and the main financial proposals of the three companies shortlisted to acquire the Pointe-a-Pierre refinery and the trading assets. Why does the minister need to seek legal advice on the acceptability of providing the same level of detail regarding financial institutions bidding to raise money for central government and State enterprises?
If the Ministry of Finance were to make public bond offers the rule, rather than the exception, the process would be fully transparent and not subject to these continuing allegations or legal manoeuverings.