KINGSTOWN, St. Vincent, March 27, IWN — An EC$40 million 10-year bond auctioned by the Government this month was under-subscribed by $14 million.
Prime Minister Dr. Ralph Gonsalves said the under-subscription resulted from poor marketing, Grenada’s recent default on its bond and uneasiness in the long-term capital market.
The bond was auctioned on March 19 to assist with financing of public sector investment programme for 2013.
The maximum rate of interest was 7 per cent to be paid semi-annually, the pricing mechanism was competitive bidding, repayment was to be amortised semi-annually and the maturation date was March 19, 2023, said Gonsalves, who is also Minister of Finance.
He said the bond was auctioned on regional government securities market using the primary platform of the Eastern Caribbean Securities Exchange (ECSE).
Gonsalves said the government had decided not to ask the Trinidad company, which arranged the bond last year, to arrange the recent auction.
“We say, let’s see how Bank of St. Vincent and the Grenadines will do. We asked them to be the arranger for the bond and investors were required to submit bid through any of the licensing intermediaries throughout the ECSE.”
At the close of the auction at 12 noon on March 19, 11 bids totalling $25,912,00 was received — an under-subscription of $14,088,000.
He said the main reasons for under-subscription could be attributed to marketing.
“The Director General of Finance and Planning advises me that the marketing was not optimal,” Gonsalves said and alluded to Grenada’s recent default on its bond.
“… uneasiness in the long-term capital market as a result of the current global economic situation and domestically, we believe too, with the Building & Loan Association issue.”
He said the March 19 bond coincided with the maturity of the $30 million 10-year bond on March 16.
“The broker made very little effort to market the bond, with only eight entities purchasing the new issue, compared with 15 in the maturing issue. Indeed, the broker didn’t bring any new investor to the table.”
Gonsalves said investors seem reluctant to commit to longer-term subscription, as evidenced by the Bank of St. Vincent and the Grenadines initial public offer, which was also under subscribed.
“I want to say this, and I want this point to soak in. Investors have an uncertainty about long-term bonds of 10 years. They prefer to take shorter-term risk and wait and see, given the uncertainty in the climate.
“To give you an indication of this, while we had an under-subscription of just about $14 million on this 10-year bond, one week earlier, on March 12, we had an over-subscription of almost $9 million on our treasury bills and the treasury bills settled at a rate of less than 3 per cent, which was excellent. What this is telling us is that people are looking for shorter-term money.
“I have been advised by my financial advisors that they are quite confident of the sale of the other $14 million on the market, nevertheless.”