Loans will be tendered

| 23/07/2013

(CNS): With the Cayman Islands government still carrying a considerable debt burden and with various bullet loan payments due over the next few years ahead of the bond of $260 million due in 2019, the premier has pointed to the pressing need to re-finance the public debt. Alden McLaughlin said this was his government’s next priority, alongside the forthcoming 2013/14 full budget, and they would be using an open tendering process to ensure transparency and the best possible value for money for government coffers. Towards the end of his tenure the former premier, McKeeva Bush, also attempted to repackage the debt but his failure to follow process meant his attempts were stopped by UK officials.

CNS recently revealed some of the correspondence relating to those efforts outside of the official tendering process, obtained through an FOI request. However, as the finance ministry has not yet released all of the correspondence relating to those efforts and redacted some documents, the full details of what happened to Bush’s proposal to give the loan deal to Caledonian Bank have not yet been revealed.

It is apparent, however, that the UDP leader in his role as finance minister had refused to tender the public financing repackage despite advice to do so from the financial secretary.
Speaking to CNS last week, McLaughlin said that having secured the necessary cushion for Cayman’s short term borrowing from the UK with an increased overdraft facility, the next most important issue was to refinance the loans and move away from the bullet bond-type borrowing that Cayman has used and to set up a sink fund to repay the principal debt.

“Whatever steps we take, however, the borrowing will go to tender via the correct channels,” he confirmed, adding that it would be an open and transparent process.

McLaughlin had been a major critic of the way that the former premier had attempted to deal with government loans, in particular the failed and controversial attempt to refinance a large part of it via Cohen and Co. That effort cost the public purse some $450,000 in fees, Auditor General Alastair Swarbrick reported, even though the deal with the New York financiers never came to fruition. At the time, Bush announced that he had usurped the tendering process for the loan as, he claimed, the deal with Cohen would save millions on the public debt.

McLaughlin said that his government would move forward with refinancing via a full open tendering process, which will be managed by the Central Tenders Committee without political interference.

In the Office of the Auditor General report relating to the management of procurement, the Cohen deal was used as a case study and led Swarbrick to offer advice to government going forward regarding public debt. He said the finance ministry needed to develop a debt risk management framework and to ensure future borrowings are obtained with due regard for value for money. 

The auditor general found that the decision to contract with Cohen & Co was made by Bush against the advice of Ministry of Finance officials.

Swarbrick recommended that in future the government should follow the financial regulations related to the procurement of supplies, services and assets and should only deal with lenders that are well known in the financial domain.

CIG pays more than $30 million each year to service its debt, which currently amounts to around $500 mllion.

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  1. Anonymous says:

    One thing I've always wondered is why not offer bonds to the public?  There is a fair amount of private capital in the Cayman Islands after all.  Instead of sending 30M in interest payments off-shore to large international financial institutions every year, why not offer municipal bonds for purchase by the public and have that interest paid to local people?  The CIG could offer rates = to their best financing or less and it would still FAR better than the interest rates we can get with local banks interest payments on certificates of deposit, etc.  It would also hopefully act as a deterrent to reckless spending.  Instead of maybe defaulting on payments to some overseas entity, they would risk driving down the value of and defaulting on obligations made to the voting public.

    • Random Walk says:

      Brilliant concentration of debt – one default and the entire nation goes bust private and public.  Not a good idea at all.  And the costs would be unworkable.

      • Anonymous says:

        Jeez, I don't think anyone is suggesting dumping all of you assets into CIG bonds.  However, could be a good way to further diversify your portfolio.  And since when does a public offering concentratedebt?  Public means public, I'm sure others investors around the world may be interested as CIG still has a decent rating.  As far as the costs, I'm not sure what you have in mind, but it doesn't have to be complicated.  You know where the term coupon in relation to bonds come from right?  Go back to that.  It isn't the responsibility of CIG to make it all electronic to enable financial firms to make money off of a secondary market.  Heck make an offer to local banks.  The first two that offer to administer it all free of charge, will get exclusive can offer thier clients easy automated deposits to accounts of bond holders (others have more manual work to do).  Banks then have a hook to pull clients into opening accounts there and in exchange do the work.  This stuff doesn't need to be rocket science.

    • Anonymous says:

      I think the Government should transfer its buildings over to a company and then sell 51 per cent of the company's shares to the public, with no-one person or entity, apart from Government, holding more than four or five percent of the company's shares and those shares be restricted to Caymanians, persons of Cayman status and maybe local pension funds, provided they can list shares of the company on an exchange, thereby giving them liquidity and retaining pension fund contribution payments within the local economy.The Government can then use the proceeds to pay of its debt and rent the buildings from the company and if that company had any long term debt it would not be part of public dent as Government would own less than fifty per cent . In addiition, the Government should try to sell the Turtle Farm to a group that would  guarantee employment to the indigenous Caymanians who work there, even if the business model would have to change from  a farm to that of  a theme park. They should  as well consider  leasing of the hospital to some well managed not for profit hospital group from the USA who would assure the Govenment that they would retain the employment of all native Caymanians who are working in the present Health Authority organization.

      • Anonymous says:

        Not a fan off turning public resources private and issuing equity in them.  It seems to invariably privatize profit of those with equity and if something goes wrong government will be pressured to take care of it an make the loss part of the public debt.

  2. Anonymous says:

    Tax the ex-pats 5% to pay it off.  Why has no-one suggested that before? 🙂

    • Anonymous says:

      Lets make sure that there is no hanki panky at the CTC, for it is known that some people favor some people.

    • SSM345 says:

      No one has suggested it 08:07, because no one is as Foo-Fool as you.