Govt breaks new ground with 15-yr bonds auction

Government is attempting to raise $300 million through 15-year bonds with a fixed interest rate of 6.15 percent per annum to refinance its high-cost debt. For the first time, Government bonds will be issued via the auction system, to be conducted by the Central Bank of TT. The auction opened at 10 am yesterday and will end 1 pm on July 30. Addressing the launch of the auction system at Crowne Plaza, Minister in the Ministry of Finance, Conrad Enill, said existing institutional arrangements for issuance of Government bonds in TT were far from efficient.  “Bonds were not often traded, but were typically bought and held to maturity. The bond market was essentially an underwriters’ market, with the stripping of issues before they were resold to final investors.” He said within this framework, yields were not market-determined nor did they facilitate and foster liquidity in the domestic markets. Enill said lack of standardisation of securities and issuance procedures reduced competitive pressures thereby increasing the cost of borrowing to the Government.

He said the introduction of the auction system was evidence of Government’s commitment to the development of the capital market, a commitment which was announced in the 2004 Budget. Enill said, “The new operational framework will provide a transparent and coordinated approach to the timing and sequencing of Government debt operations.” Another bond issue will be made in September. Enill said in the context of the Budget, Government would provide a calendar of the timing of bond issues for the year, to provide predictability and transparency and to boost market confidence.” He said the launch and release of the prospectus of the first bond issue under the new system was only the start. Enill said development of a capital market, and the secondary market in particular, required the participation and commitment of all participants. He admonished Government Securities Intermediaries to develop an active secondary market.

Governor of the Central Bank, Ewart Williams, said development of a liquid secondary market would require a concerted public/private sector partnership. He said bonds have grown steadily over several years and Public Sector issues (including public utilities and state enterprises) have averaged between $3 billion between 2000-2003. Williams said the use of the auction system represented a decisive step to move the Government bond market to another level by overhauling the procedures for primary market issuance. “No longer is the Government bond programme simply related to budget financing and debt management. Now with this framework, in addition to these objectives, it will be explicitly geared to fostering savings and providing economic information to the financial market.” In an overview of the auction process senior manager of operations at Central Bank, Joan John, said the bonds would be issued in lots of $5,000 and multiples of this amount. A limit of 30 percent of the issue size has been set to prevent one person from obtaining the entire issue. There is a four percent of issue size for non-competitive bidders for people.