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Tuesday, July 7, 2009
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Preferred shares stealing govt thunder? By VERNON CLEMENT JONES ~ Guardian Business Editor ~ vernon@nasguard.com: The growing number of privately placed preference share offerings are threatening to capture some of the demand for sovereign debt issues, with Butterfield Bank the latest offshore player to win oversubscription for its own $200m gambit. Craig Lines, VP of sales and a director with LOM's Nassau office, bills that offering as attractive to income-oriented investors otherwise interested in government issued bonds. LOM, acting as one of the lead agents in the Butterfield $200 million USD preference share issue, obtained a whopping $144 million in retail and institutional orders for the oversubscribed deal. "With the absence of withholding taxes, along with the full guarantee of the government of Bermuda, this issuance should trade in-line with comparable 10-year sovereign debt," he says in a press statement released to Guardian Business Monday. "We find the 8.0% coupon and security very attractive on this basis... . "We were pleased to participate in such a successful offering." The LOM Group, with offices here and in Bermuda, scored an allocation of $29 million of that same offering by Butterfield Bank, also headquartered in Bermuda but with operations in The Bahamas and Cayman Islands, among other jurisdictions. Its 10-year preference shares pay a dividend of some 8.00 percent. They're also guaranteed by the Bermudan government. Preference share offerings, and their growing number, are likely a sign of the global economy and the need to raise capital for expansion, and in the case of banks, cash for lending. Bank of The Bahamas is the latest local player to make such a move, its recent $20 million preference share offering winning full subscription in just one day. Its managing director says the money is expected to bolster a balance sheet with $10.6 billion in total assets. Preference shares, argue some international analysts, pose an increasing challenge to sovereign bond offerings issued by small countries like The Bahamas. They have the potential to limit both domestic and international demand for the latter during recession, when investment cash is hard to come by and the associated interest rate is comparable. Unlike ordinary shares, preference shares are more like debt. Their dividends are paid out ahead of those of ordinary shareholders. The holders of preferred shares are also higher in the queue of creditors during bankruptcy. All of that has made those investment vehicles more appealing as equities continue to struggle with a bullish market and governments grapple with revenue shortfalls. Any threat preference shares pose to Bahamian government bonds may be compounded by the intrinsically limited investment pool in this restricted market. Adding to woes is that institution investors are themselves grappling with reduced income streams and the growing need to hold onto money to cover expenses rather than seek new investments. Still, the government challenge of competing against preferred shares may be moot this year: The administration has indicated taking on any new and significant debt is largely off the table, given a 43-percent debt-to-GDP projection for the close of the current fiscal year.
Tuesday, July 7, 2009 |
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