Valuation of closed sugar estates to be made public in 2 weeks -SPU blasts Jagdeo’s erroneous bond statements

Jul 06, 2018 News

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The Special Purpose Unit (SPU) under the National Industrial & Commercial Investments Limited (NICIL), yesterday announced that the preliminary works being carried out by PricewaterhouseCoopers (PwC) with respect to the valuation of the estates that have been put up for privatisation and diversification are 90% completed.

The multinational professional services network is completing the 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. It is expected 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, said, “Work continues apace both with the process being carried out by PriceWaterhouseCooper (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”.
London added, “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.”
Earlier this year, the executive management of NICIL, in collaboration with the Ministry of Finance, embarked on an ambitious strategic plan to turnaround the fortunes of the Guyana sugar industry.
“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, SPU explained yesterday, that financing was sought to implement NICIL’s strategy, to the tune of $30 billion and awarded a mandate to the leading arranger of debt financing in the Caribbean, Republic Bank Limited.
SPU said that it has noted that the Leader of the Opposition, Bharrat Jagdeo, publicly criticized the way that the $30 billion syndicated bond was secured by NICIL.
“In response to those criticisms, it should be noted that as standard for any debt financing, security is required to secure payments to bondholders. 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.
Bond Issue
“It is therefore important to correct several inaccurate statements being made by the former President of Guyana and Minister of Finance, Bharrat Jagdeo, regarding the bond. The bond was secured solely by the full faith of bondholders in the Government of Guyana and not against any assets of NICIL or GuySuCo. 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, SPU said, any prudent investor would demand a return higher than the rate of annual inflation.
“Mr. Jagdeo’s comments as a former Finance Minister are very concerning, since he would certainly understand that no country in the world, including the USA, Switzerland or Germany can 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 rise within the next year.”
According to SPU, to further illustrate how competitive the interest rates in comparison to Trinidad and Tobago, Bahamas, Jamaica, Suriname and Belize, Guyana had the lowest lending rates at 4.75 while the others went as high at 10.3 percent.
“The Marriott US$27M 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.”
SPU said that while the NICIL bond issue is a private placement and intended solely for accredited investors, 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 T-Bills, 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 T-Bills. 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.”

 

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