Friday, February 1, 2013
Friday, February 1, 2013
A resolution was tabled and passed in the House of Assembly January 30 to secure a government guarantee for a $250-million private placement in the international financial markets by the Bahamas Electricity Corp (BEC), as it seeks to restructure its debt portfolio.
Moving the resolution was Minister of State for Finance Michael Halkitis (pictured), who pointed out that the government guaranteed $211 million of the debt on October 20, 2009, with an additional $35 million borrowed on the August 27, 2012.
When rounded to $250 million, the net contingent liability of the government amounted to $39 million, according to Halkitis.
“I rise to move a resolution, which when passed would guarantee a total of US$250 million of debt of the Bahamas Electricity Corporation (BEC); it is intended that the guarantee will cover instruments to be issued in the US$ capital markets to facilitate the refinancing of this debt,” said Halkitis.
“$211 million of the debt already carries a government guarantee, so the increase in the government contingent liability will be on the order of $39 million.”
According to Minister Halkitis, this debt restructuring exercise was necessary because most of BEC’s $240-million debt portfolio will be due in April 2013. The National Insurance Board (NIB) and a consortium of commercial banks led by First Caribbean Bank International are the creditors. The others are Scotia Bank, Bank of The Bahamas, Butterfield Bank and the Royal Bank of Canada (RBC).
“BEC now has a US$ debt portfolio in excess of $240 million, most of which becomes due in April 2013,” Halkitis continued.
“CIBC FirstCaribbean is the provider of the latter loan and is the lead bank in the syndicate, which provided the loan for US$211 million. CIBC FirstCaribbean will act as arranger for the refinancing of this debt in the US capital markets by way of a private placement.”
Commenting on the purpose of the $250 million that BEC is seeking to raise in the capital markets, Minister Halkitis had this to say:
“One hundred and five million (US$105 million)–42 per cent of the amount for which the guarantee is being sought–represents amounts associated with the purchase of fuel. The remaining amount is related to the refinance of IDB loans and sundry capital works.”
While admitting that borrowing to meet ordinary recurring expenses is unsustainable, the Minister pointed out some of the initiatives BEC is undertaking is to bring relief to consumers through the reduction of the non-fuel cost of electricity. They include the adoption of modern procuring and pricing methods in addition to fuel conservation.
“The overall goal of the government is to reduce the non-fuel cost of electricity (operations, maintenance and administrative expense) to the consumer, which is at $0.11 per kWh, and to minimize the variability in the fuel portion of the cost of electricity by adopting modern methods of procuring, pricing and conservation in the use of fuel.”
The Minister expressed the belief that this refinancing effort is a first step in facilitating a sustained reduction in the cost of electricity.
The term of the private placement, he added, will be in the neighbourhood of 15-20 years and, with the government guarantee, will ease BEC’s cash flow challenges through lower payments on the restructured debt.