Potential investors to visit sugar estates next month

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Potential investors are likely to begin visiting various sugar estates next month in order to make assessments of the facilities, the Special Purpose Unit (SPU) under the National Industrial and Commercial Investments Limited (NICIL) announced.

In a statement Thursday afternoon, the Unit said preliminary works being carried out by PricewaterhouseCoopers 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 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.

Head of the SPU, Colvin Heath-London expressed in the statement 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.”

He added that progress is 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.

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 cogeneration 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.

In response to criticisms from the Leader of the Opposition Bharrat Jagdeo about the $30 billion syndicated bond, the SPU said as the standard for any debt financing, security is required to secure payments to bondholders.

See full response to the Leader of the Opposition below:

It was noted that the Leader of the Opposition, Mr. Bharrat Jagdeo publicly criticized the way that the

G$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 (5) 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.

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, 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 raise within the next year.

To further illustrate how competitive the interest rates are in comparison to the countries in local lending rates see the table below:

Countries Bond Rates S&P Rating
Trinidad and Tobago 4.8%

 

AA- (Investment Grade)
Bahamas 5.5% BB+ (Non-investment grade Speculative)
Jamaica 7.5% B (Non-Investment Grade High Speculative)
Suriname 10.1% B (Non-Investment Grade High Speculative)
Belize 10.3% B (Non-Investment Grade High Speculative)
Guyana 4.75% Non Rated

 

 

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.      

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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