The government could be choking out its own crowdfunding initiative for small and medium-sized businesses by seeking so much financing from local capital markets, one financial expert warned.
Noting that the local market space could get crowded out, Chief Executive Officer of the Fidelity Group Gowon Bowe questioned how much excess liquidity would be left to invest in small businesses if the government is this year seeking to raise almost $900 million from local investors.
The government earlier this month approved the Securities Industry (Business Capital) Rules, 2021 which allows eligible small or medium-sized businesses to raise up to $5 million within a single 12-month period.
“There’s a lot of conversation that has to take place and The Bahamas capital market space can actually get crowded out. If you think about the objectives of this government, they’re saying they want to develop small and medium-sized enterprises – well, if the government is going to the capital markets and seeking to absorb near $900 million of that in the domestic environment, then how much liquidity is left for businesses seeking the same funding? So this is a macroeconomic conversation,” Bowe said in an interview with Guardian Business.
The Bahamas International Securities Exchange (BISX) has said it is considering its own type of crowdfunding mechanism, but it is just in the infant stages of development.
The market is comprised of 20 ordinary shares with a market capitalization of $4.52 billion, with eight preference shares with a market capitalization of $249 million, 11 Bahamas government stock (BGS) and corporate bonds with a face value of $470 million and 202 Bahamas government registered stock (BGRS) with a face value of 3.3 billion.
“We’re not the United States, we don’t have the buoyancy in the capital markets to say there are trillions of dollars. If you look at The Bahamas’ capital markets for the last decade, the government has probably represented 75 to 80 percent of the capital activity,” Bowe said.
“Just think about the past year, you had the cruise port and some smaller issues, but let’s say they were $200 million, but just last year the government had over $700 million that it had to refinance and it increased its borrowing up to $1.3 billion for this fiscal year just ended, of which $600 million is in the Bahamian marketplace, but it needed more than $600 million in order to fund the deficit component to repay some of the others. It’s a very intricate conversation that should not be spoken about in isolation.”
In addition to the government going to local markets this year, Bahamas Power and Light (BPL) has also said it intends to place approximately $80 million on local markets as a part of its rate reduction bond placement.