Regional bond market = investment

RBTT Merchant Bank executive, Filippo Alario, believes regional economies would be better off if businesses relied more on the financial markets rather than bank loans to fund their operations. Alario also said that developing the regional bond markets will encourage more investors to keep their funds at home and will in time lead to a more diversified risk portfolio across the region. New legislation is needed to meet international standards and will provide the confidence necessary for long term stability in the financial sector, he believed. In an address titled, “Issues surrounding the development of a corporate bond market in developing countries, at the third annual Euromoney Caribbean Investment Forum in the Dominican Republic last week, Alario said the move will lessen the region’s vulnerability to fluctuations in the international capital markets and also reduce the impact of global economic shocks and recessions.

Despite legal hurdles,  RBTT Bank has raised more than US$1 billion on the regional bond markets for its clients across the Caribbean, including a recent issue of US$104 million for Ege Haina, a power generating company in the DR. But Caribbean territories must update their legal and financial infrastructure if it wants to develop vibrant financial markets and boost global competitiveness across the region. He said the initiative will also support the determination by many regional governments to maintain sound economic policies and it will enhance stability of the local market for corporate and sovereign bonds and securities. “With a well managed government sector, investors and traders will be better positioned to forecast a smooth and more reliable yield curve from which corporate issues can be benchmarked. “With an improved legal framework, investors can look forward to a regional credit rating system, more reliable disclosure systems and updated bankruptcy laws that protect bondholders,” he said.

He said the regional bond markets face serious challenges ahead. Although the market has seen tremendous growth over the past few years, it is far from its true potential as a major tool for transforming economies across the region. “The regional market is limited by the small number of firms that are operating on a scale large enough to access the market. On the investment side, individual and institutional investors are few and are lacking the sophistication to take advantage of many of the new opportunities that are being introduced to the market,” says Alario. Governments, he said, should be committed to the process of reform and fostering the entrepreneurial spirit of regional businesses by providing tangible support through reductions in withholding taxes for funds raised and issuances. He said in most of the territories, overcoming the legal and institutional challenges have placed them out of the running for low cost funding on the international markets.