The delay in finalizing the Bahamas Power and Light (BPL) rate reduction bond (RRB) has less to do with COVID-19 and more to do with a lack of interest in the investor market for BPL’s debt, a local investor and financier has asserted.
At the start of the year, BPL sought to raise just under $600 million by way of the RRB to help refinance its legacy debt.
However, the RRB was said to be delayed due to global economic instability as a result of the COVID-19 pandemic.
But CFAL President Anthony Ferguson said he believes the RRB was not finalized because of a lack of investor confidence.
“The challenge with BPL, with the greatest respect, is not that they wanted to delay it, not that COVID-19 caused a delay, it was that there was no appetite for the debt of BPL for any number of reasons,” he said during a CFA Society The Bahamas webinar on “The Road to Economic Recovery” on Thursday.
“First and foremost, the government is still
controlling it so it is poorly managed, has been poorly managed and will continue to be poorly managed and until you can give investors confidence that the management has the capacity to manage in an efficient manner…the appetite for BPL debt will continue to be extremely low, save for national insurance and government-controlled entities.”
At the end of last month, Prime Minister Dr. Hubert Minnis tabled a resolution in the House of Assembly to allow the government to assume $246 million of BPL’s debt as a term for the further extension of BPL’s loan facilities, which were expected to come due and payable by July 24, 2020. The extension was needed, given that the RRB has not been finalized.
“The fact is there was no appetite for BPL, that’s why they didn’t do it and won’t until the government is prepared to make the tough decisions in terms of the management and getting out of the management of it and making it more efficient,” Ferguson said.
“What government should really do is privatize generation and keep regulatory control on the transmission, that way they can control the course of distribution to the end consumer. But I do not see BPL being able to raise even with a rate reduction bond anything under nine to nine and [a] half percent. And another reason they were not able to do it was because the lenders wanted it to be variable and not a fixed rate.
“Initially when it was conceived, it was going to be two or three cents per kilowatt, but when you look at the expanding inefficiencies and growing debt, that was not sufficient to cover the debt and hence they wanted to make it variable, so that they can adjust it as the debt increased and of course I don’t think government was prepared to make that tough decision and as such, they were not able to refinance their debt.”
Last year, the government passed the Electricity Rate Reduction Bond Bill, 2019 in Parliament, which is expected to help BPL refinance its $321 million legacy debt and raise another $350 million in new funding to invest in new power generation.