SPU defends $30B bond acquired for GuySuCo

first_img…says PWC valuation of sugar estates 90% completeThe Special Purpose Unit (SPU) under the National Industrial and Commercial Investments Limited (NICIL) has responded to statements made by Opposition Leader Bharrat Jagdeo in regard to his criticism of the $30 billion bond acquired by SPU through commercials banks both in Guyana and the region.The SPU has not taken lightly those criticisms, which seek to suggest that the bond would be wasted and that it was acquired at an unreasonable rate. In a statement issued Thursday, the SPU said it should be noted that, as standard for any debt financing, security is required to secure payments to bondholders.According to the SPU, rather than burden the assets of NICIL, which include the Guyana Oil Company, Atlantic Hotels Incorporated and the Guyana Sugar Corporation (GuySuCo), 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 would 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 statement said.The SPU reminded that the bond was secured solely by the full faith of bondholders in the Government, and not against any assets of NICIL or GuySuCo. Further, the Unit noted that the commercial lending rate for Guyana is 13.00 percent, while the NICIL bond was issued at 4.75 percent, which is 8.25 percent lower than the rate that most companies borrow at in Guyana.It said, “The current inflation rate in Guyana is 2 percent; 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 percent for 40 years, as he mentioned.”The Unit also stated that the 30-year US Treasury Bond is currently trading at 3.04 percent, 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, the SPU pointed to various bond rates in the region.However, Jagdeo said recently that he is now in receipt of the Private Placement Memorandum for the GuySuCo $30 billion bond, and having read the contents of that document, he was shocked by what was contained in the agreement, which now leaves more questions than answers.“I’ve had a copy of the Private Placement Memorandum for the bond – the $30 billion bond — and I was shocked,” the Opposition Leader said recently, noting that in reading the memo, he came across details that the proceeds would be used to fund long-term projects and capital expenditure.Jagdeo, an economist by training, said the general perception was that Government was raising $30 billion to spend on GuySuCo, on the remaining three estates. However, the memo tells a different story, as it has stated explicitly that the $30 billion that they agreed to will go to long-term projects instead.“We don’t know what the projects are as yet, but you would recall that this bond is only for five years. So, they’re borrowing on a short to medium term, for long-term projects. You tend to match your borrowing with the life of the project. Normally, we would borrow on concessional terms for long term-projects.”He used the example of the road and airport expansion projects, where there is an option of repayment of 20 or 30 years at one and two per cent interest. These, he said, are long-term projects. “So that you don’t have big balloon payments,” he declared.However, Jagdeo said that in the case of the GuySuCo bond, this was different because, “In five years, at a 4.75 per cent interest, which is 355 basis points above our treasury bill, the Government of Guyana will have to pay back from the proceeds of NICIL nearly US$40 million in about five years just to service $30 billion.”The SPU also 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 percent completed. It said that it is 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. 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.last_img

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