Bond All Good

The Fijian Government has successfully executed a new global bond of US$200 million (FJ$435 million) after settling early the existing US$250 million (FJ$543 million) bond taken up in 2011. The
24 Sep 2015 12:51
Bond All Good

The Fijian Government has successfully executed a new global bond of US$200 million (FJ$435 million) after settling early the existing US$250 million (FJ$543 million) bond taken up in 2011.

The Minister for Finance, Aiyaz Sayed-Khaiyum, confirmed this had been achieved with the lowest ever coupon on interest rate of 6.625 per cent payable on a bond in Fiji in the international bond market.

He said: “In value terms, this would mean the interest cost on the new bond would be approximately FJ$100m lower in total over the next five years than the last bond, given the bond value and interest rate.”

The announcement was made in Parliament yesterday followed by a press conference. The bond was issued yesterday morning.

The country is expected to greatly benefit from this bond issued through notable savings by paying the current US$250 million bond early.

The Parliament had been informed in a closed session in August that Government planned to repay early the existing US$250 million which was due in March 2016, with a new bond issue of a lower amount of US$200 million.

It was also told the balance of US$50 million (FJ$108 million) was to be funded through funds saved in the US$ sinking fund that the Government had established as prudent finance managers.

The closed Parliament session in August had created much uproar particularly by the Opposition.

However, Mr Sayed-Khaiyum, stressed this had been critical because Government had intended to offer to buy back the bonds from the existing bond holders.

As a result, it was critical the international market was not alerted on the matter as market speculation would then have affected the deal and compromised Fiji’s position.

As a result, US$243.15 million (FJ$529 million) of the current bond holders have agreed to sell their 2011 notes back to Fiji, Mr Sayed-Khaiyum confirmed.

“Buying back meant that we could not alert the market otherwise we would be subject to market speculation and therefore higher pricing and we would have been a price taker,” he said.

Thus, he stated, the closed session was necessary.

Mr Sayed-Khaiyum said the outstanding tender result of 97.25 per cent success rate was one of the highest success rates achieved for a sovereign bond in the past few years for similar tender offers of buy back in the market.


Global Bond background

A bond is a debt investment in which an investor loans money to an entity (typically sovereigns, state-owned enterprises, financial institutions and corporates) which borrows the funds for a defined period of time at a fixed interest rate.

At the end of the defined period of time (tenor of the bond), the funds will be repaid to the bond investors.

Fiji’s first international bond was raised in September 2006 by the SDL Government with a sum of US$150 million (FJ$326 million) which was to mature in September 2011.

This was taken at an interest rate of 6.875 per cent.

The Bainimarama Government then, in September 2011, raised a US$250 million five year global bond to pay off the first bond and this was due in March 2016.

This bond had a higher coupon rate of nine per cent, a reflection of the turbulent and volatile market conditions when Fiji refinanced the US$150 million bond in 2011.

Mr Sayed-Khaiyum pointed out this was at a time when the global market was faced with a growing debt crisis in most of the advanced economies such as Greece, Ireland, Spain and others.

“The new coupon rate of 6.625 per cent, is even lower than the 6.875 per cent of the first bond issue by the SDL Government, even when Fiji had supposedly a slightly better credit rating,” he said.

“This means there is significant additional cost savings of refinancing the current bond with the coupon rate of nine per cent to the new bond with a coupon rate of 6.625 per cent.”


What this means for Fiji?

So what this basically means for Fiji is that we do not have to pay the nine per cent coupon rate anymore on this amount.

This results in an approximate savings of just below FJ$9 million, Mr Sayed-Khaiyum confirmed.

He said the initial projection had been that Government would save a minimum of approximately FJ$5 million, but they were able to save $9 million.

“What this also means is that our debt falls by US$43.15 million or FJ$93 million, now instead of March 2016,” he said.

“The way this happens is that we are raising only US$200 million instead of US$250 million which was the amount of debt through the bonds before this new issue of bonds.

“This reduction in debt means that our debt to GDP ratio will be lower by approximately another one per cent at the end of 2015.”



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