An­tho­ny Wil­son

In the space of 11 months, that is from Sep­tem­ber 19, 2008, to this week, the Gov­ern­ment of Trinidad and To­ba­go and state-owned en­ter­pris­es bor­rowed $12.2 bil­lion by is­su­ing bonds on the lo­cal and in­ter­na­tion­al cap­i­tal mar­kets. Of that amount, the Gov­ern­ment bor­rowed $2.18 bil­lion in its own name in three is­sues:

�2 A sev­en-year bond raised $280 mil­lion in June with a yield-to-ma­tu­ri­ty of 5.85 per cent. This bond at­tract­ed $1.039 bil­lion in bids, which the Cen­tral Bank in its no­tice de­scribed as "well re­ceived.";

�2 An 11-year, $600 mil­lion bond with a yield of 6.4 per cent was un­der-sub­scribed and raised $368.5 mil­lion on June 26.

�2 A 15-year bond is­sued in April with a yield-to-ma­tu­ri­ty of 7.75 per cent raised $1.5 bil­lion, al­though to­tal bids were re­ceived for $2.6 bil­lion.

On the oth­er hand, the fol­low­ing state-owned com­pa­nies is­sued bonds worth about $10 bil­lion: The Gov­ern­ment bor­rowed US$400 mil­lion ($2.5 bil­lion) from Chi­na's EX­IM bank at what was de­scribed as a con­ces­sion­al rate to build the 125,000 met­ric tonne per year Alutrint alu­mini­um smelter at La Brea in south­ern Trinidad. Ac­cord­ing to a re­port on the BNamer­i­c­as wire ser­vice in May, Alutrint man­ag­er of com­mu­ni­ca­tions and com­mu­ni­ty re­la­tions Josieann Richards said a con­di­tion of the loan was that the Gov­ern­ment should hire the Chi­nese con­trac­tor CMEC to pro­vide labour and tech­nol­o­gy for the plant.

�2 Petrotrin float­ed a ten-year, US$850 mil­lion ($5.4 bil­lion) bond on Au­gust 11 in New York which was priced to yield 9.875 per cent. This bond at­tract­ed bids of US$5 bil­lion, ac­cord­ing to in­ter­na­tion­al wire ser­vice re­ports;

�2 Nipdec raised $682 mil­lion through a 13-year, 6.8 per cent bond in Ju­ly. The bond was over-sub­scribed with the to­tal bids re­ceived amount­ing to $1.085 bil­lion;

n The Wa­ter and Sew­er­age Au­thor­i­ty raised $300 mil­lion in a five-year, 6.3 per cent bond in June. The WASA bond re­ceived bids amount­ing to $993 mil­lion and due to the re­sponse of the mar­ket, the bond was al­lot­ted at a pre­mi­um, of­fer­ing in­vestors a yield of 5.95 per cent;

�2 The Hous­ing De­vel­op­ment Cor­po­ra­tion raised $500 mil­lion in Feb­ru­ary with a 15-year bond which was is­sued at par with a yield-to-ma­tu­ri­ty of 8.25 per cent. The bond was over-sub­scribed with to­tal bids re­ceived amount­ing to $878 mil­lion.

�2 The Hous­ing De­vel­op­ment Cor­po­ra­tion al­so raised $700 mil­lion in a 15-year bond which was is­sued at par with a yield to ma­tu­ri­ty of 8.7 per cent al­though bids amount­ing to $1.056 bil­lion were re­ceived.

What is one to con­clude from this in­for­ma­tion?

First, that state-owned com­pa­nies have dom­i­nat­ed bor­row­ing or bond is­suance in the last 11 months;

Sec­ond, that most of the bonds is­sued by the Gov­ern­ment and the state-owned en­ter­pris­es or loans tak­en in the 2009 fis­cal year have been project re­lat­ed and that the Gov­ern­ment has not is­sued a bond for the ex­press pur­pose of deficit fi­nanc­ing as yet.

Third, al­though a con­ser­v­a­tive es­ti­mate of the Cen­tral Gov­ern­ment's fis­cal deficit for the 2009 fis­cal year is $6 bil­lion, it has on­ly raised $2.1 bil­lion of this es­ti­mat­ed amount thus far with on­ly six weeks of the fis­cal year re­main­ing;

Fourth, that the pre­vi­ous­ly stat­ed es­ti­mate of the Cen­tral Gov­ern­ment's fis­cal deficit for the 12-month pe­ri­od end­ing Sep­tem­ber 30, 2009 DOES NOT in­clude the $1.2 bil­lion that the Gov­ern­ment for­ward­ed to Cli­co short­ly af­ter the in­sur­ance com­pa­ny col­lapsed at the end of Jan­u­ary or the $3.8 bil­lion that the Gov­ern­ment has com­mit­ted to lav­ish­ing on the in­sur­ance com­pa­ny;

Fifth, that giv­en the high­ly liq­uid state of the lo­cal fi­nan­cial sys­tem and the pauci­ty of pri­vate sec­tor cap­i­tal mar­ket is­sues, there is over­whelm­ing de­mand by lo­cal fi­nan­cial in­sti­tu­tions for Gov­ern­ment and Gov­ern­ment-guar­an­teed bonds.

Sixth, that the de­mand for Gov­ern­ment and Gov­ern­ment-guar­an­teed pa­per is com­ing most­ly from in­sti­tu­tions which sub­mit com­pet­i­tive bids that is a bid price at which the in­sti­tu­tion is will­ing to buy the se­cu­ri­ty and not from in­di­vid­u­als who most­ly sub­mit non-com­pet­i­tive bids in which the pur­chas­er agrees to ac­cept the price de­ter­mined in the auc­tion. Com­pet­i­tive bids com­prised about 98 per cent of the $1.5 bil­lion raised by the Gov­ern­ment in april.

Sev­enth, that be­cause the Gov­ern­ment and state agen­cies have been so ac­tive in the lo­cal bond mar­ket, the Cen­tral Bank has not need­ed to is­sue liq­uid­i­ty ab­sorp­tion bonds in the 2009 fis­cal year as it was forced to do in the three pre­vi­ous years. For ex­am­ple, the Cen­tral Bank is­sued $1.2 bil­lion in nine-year liq­uid­i­ty bonds in 2008 pay­ing a rate of 8.25 per cent. Eighth, that the Gov­ern­ment seems to have a pref­er­ence to raise TT dol­lars on the lo­cal mar­ket and US dol­lars on the in­ter­na­tion­al cap­i­tal mar­ket.

This is de­spite the fact that there are bil­lions of US dol­lars domi­ciled in lo­cal banks and fi­nan­cial in­sti­tu­tions which are cur­rent­ly re­ceiv­ing in­ter­est rates of less than two per cent.

These lo­cal­ly-domi­ciled US dol­lar ac­counts would have wel­comed the op­por­tu­ni­ty to pur­chase the Petrotrin bond with a yield-to-ma­tu­ri­ty of 9.875 per cent but were de­nied be­cause most of the po­ten­tial pur­chasers were not on the bro­kers' lists.

But the most fun­da­men­tal point is this: Are the Gov­ern­ment and the state-owned en­ter­pris­es en­gag­ing in a care­ful and sys­tem­at­ic pro­gramme of bor­row­ing with a watch­ful eye al­ways on the abil­i­ty of the econ­o­my to re­pay and the bur­den that ser­vic­ing debt will place on the fis­cal ac­counts go­ing for­ward? Or have the state en­ter­pris­es been giv­en free reign to bor­row as much as they want at what­ev­er over-in­flat­ed terms some clever in­vest­ment banker con­vinces the ex­ec­u­tives are most ap­pro­pri­ate? Is any­one in the Gov­ern­ment think­ing about these is­sues?