Special Purpose Unit scolds Jagdeo on GY$30 billion bond for Guysuco; investors to inspect estates next month

Last Updated on Thursday, 5 July 2018, 20:20 by Denis Chabrol

The Special Purpose Unit (SPU) of the National Industrial and Commercial Investments Limited (NICIL) on Thursday lashed out at Bharrat Jagdeo, saying that as a former President and former Finance Minister he should know that the GY$30 billion bond for the sugar industry at 4.75 percent interest rate was a good deal.

The SPU further dismissed Jagdeo’s criticisms that the Guyana government, instead of the Guyana Sugar Corporation or NICIL was offering security for the loan.

In a long statement, the SPU said the bond was secured solely by the full faith of bondholders in the Guyana government and not against any assets of NICIL or GuySuCo. Further, SPU said the commercial lending rate for Guyana is 13.00%, while the NICIL bond was issued at 4.75%, which is 8.25% lower than the rate that most companies borrow at in Guyana. The current inflation rate in Guyana is 2%; therefore, any prudent investor would demand a return higher than the rate of annual inflation, the NICIL unit said.

The GY$30 billion would be used, the SPU said, to help finance “an ambitious strategic plan to turnaround the fortunes of the Guyana sugar industry.”

According to the Unit, in part, the strategy involved the development of two co-generation facilities, upgrades to the existing sugar factories to produce white sugar, the restructuring of debt, and ongoing training and education for the workers and management of Guysuco. “To augment the plan, financing was sought to implement NICIL’s strategy, to the tune of G$30 billion and awarded a mandate to the leading arranger of debt financing in the Caribbean, Republic Bank Limited,” SPU said.

Responding to Jagdeo’s criticism of the way the syndicated bond was secured by NICIL, the SPU justified the decision for the Guyana government to  guarantee repayment of the bond instead of NICIL or Guysuco.

“Rather than encumber the assets of NICIL, which include the Guyana Oil Company, Atlantic Hotels Incorporated and the Guyana Sugar Corporation, the security of the NICIL bond is simply a guarantee of payment from the Government of Guyana.

The terms of the bond are five years, since it is expected that the proceeds of the land sale for GuySuCo will be used to repay the facility and NICIL wanted to secure the lowest possible interest rate,” the SPU said.

Expressing concern at some of Jagdeo’s “inaccurate” statements, the SPU said he should understand that no country, including the United States, Switzerland or Germany could borrow at less than 2% for 40 years, as he mentioned. The 30-year US Treasury Bond is currently trading at 3.04%, which is expected to raise within the next year.

According to the SPU, the Marriott US$27 million bond that was secured indirectly by assets of NICIL, had a floating interest rate above 8.50% per year. The Berbice Bridge bond that is also indirectly secured against the assets of NICIL, has an interest rate of 10.0%. “Both bonds were and are tax-free and were issued before May, 2015.”

While the NICIL bond issue is a private placement and intended solely for accredited investors, NICIL said one of the primary beneficiaries are pension and insurance plans that are seeking to make medium-long term liquid investments at an attractive rate of return. “To date, many of these plans earn less than 1.50% on Treasury ills, even though they are expected to generate roughly 6% per year to meet ongoing pension obligations. Many of these plans will become insolvent if the only available risk-free investment option are Treasury Bills,” the NICIL unit said.

“The issuance of the NICIL bond is viewed as a precursor for increased activities within the Guyana capital markets, from corporations looking to tap affordable sources of financing. Therefore, while citizens are welcome to scrutinize the books of the NICIL, it is important to be factual in any analysis,” the SPU added.

The SPU said 90 percent of the preliminary valuation works of several estates that have been earmarked for privatisation and diversification were completed by the United Kingdom-headquartered PriceWaterhouseCoopers (PwC). That, the SPU said, would pave the way for the estates- Skeldon, Rose Hall-Canje, East Demerara/Enmore, and Wales-to be advertised before month-end.

“The multinational professional services network is presently completing information memoranda (IM) for each estate. The IMs will include the asset registry and land inventory for each estate. The completed IMs will be published for potential investors, and public scrutiny, within the next two weeks,” the Unit said.

The NICIL Unit hoped that potential investors would begin visiting the various estates in August, in order to make assessments of the facilities as part of the preparation of their proposal to the SPU.

Head of the SPU, Colvin Heath-London was quoted in a statement by his agency that , “work continues apace both with the process being carried out by the PwC and with the efforts of the SPU to maintain the operations of the estates as going concerns until they’re handed over to investors at the end of the process”

Heath-London also added that, “progress is also being made with the sale and lease of assets at the Wales Estate, and the conversion of the Skeldon Estate compound to the Skeldon Heritage Resort has gone very well.”