…says borrowing cost for bond higher than treasury bills
The Private Placement Memorandum for the Guyana Sugar Corporation (GuySuCo) $30 billion bond is now with Opposition Leader Dr Bharrat Jagdeo. In revealing his thoughts, Jagdeo said that he was shocked by the contents of the agreement, which now leaves more questions than answers.
Jagdeo reminded that several things were said about the agreement. At one time it was called a bond then a loan and then it was later revealed that Government pledged the assets of the National Industrial and Commercial Investments Limited (NICIL), because the Government did not give any explanations.
“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.”
However, Jagdeo said 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 former Head of State said that the sum could have been used to build an entire Marriott Hotel. “And you would recall the money we were trying to borrow against Marriott, the only collateral was the project itself, not a guarantee by NICIL but the project itself. If the project fails, the bank takes the project,” he reminded.
In this case, the loan is guaranteed by NICIL, and NICIL would repay the loan and it has a State guarantee. “So, that is it. The borrowing cost is high, higher by treasure bills…significantly. Imagine the Government can borrow now on T-bills, just over one per cent and they want to borrow at 4.75 per cent,” he added.
In addition to that, Jagdeo said that the bond would be free and clear of 40 per cent corporate tax, giving the Government a guarantee, which essentially means that it is a tax-free bond to the banks as well.
NICIL’s Special Purpose Unit (SPU) Head Colvin Heath-London had recently confirmed that over the next few months, special emphasis would be placed on transforming GuySuCo’s economic misfortune into a situation where it was a fully self-sufficient, viable and competitive enterprise.
He had disclosed that the Finance and Agriculture Ministries and all of the related industry partners were fully on board with the new Board of Directors’ vision for a new value-added industry and modernised company.
Heath-London explained that when the restructuring plans were at a mature stage, then the real benefits would be realised to ensure GuySuCo’s modernisation and return to profitability.
He spoke about the sale of prime GuySuCo lands around the country and the new approaches that were being employed by his technical officers.
Since his announcement of the bond, concerns have been raised about Government’s vision for the industry and the genuineness of its actions thus far since that very $30 billion could have gone into restructuring the industry while keeping all of the estates open and GuySuCo’s workforce employed and engaged.
