Private sector benefits from low bond rates in Trinidad and Tobago
The recent article from the Trinidad and Tobago Business Guardian shows how local private sector companies can benefit from the continued low interest rate environment in Trinidad and Tobago. Neal and Massy, now Massy Holdings Limited was able to secure TT$1.2 billion in two tranches, both providing investors with a moderate premium over the current Central Government (GORTT) bond rates of around 3.0% for 15 years and 2.5% for 10 years. In addition, FCB, was able to raise TT$500 million also in two tranches. The FCB bonds also provided investors with a slight premium over the current GORTT yields, however less than that of Massy Holdings, and likely due to the fact that FCB is a ‘quasi-sovereign’ banking institution that had a very successful IPO in 2013.
Both institutions utilized the low interest rate environment to acquire cheap financing for the use of future strategic investments and reducing current interest expense. Taking advantage of the current low rates is an important and strategic decision for many institutions in the nation, and opportunities such as these should be taken when possible.
Having said that, the primary bond market in Trinidad and Tobago has been quiet for the year thus far. Apart from the 7-year 2.2% coupon GORTT bond issued by the Central Bank (CBTT) in June 2014, the market has been flat with very few institutions issuing over the period. Hopefully we can see more private sector companies accessing the primary bond market and taking advantage of the low rates over the next few months. This would be an ideal time for companies, new and veteran to the local bond market, to seek and obtain cheap money for investing and reducing interest expenses.
In addition, with the US Fed tapering its US$85 billion bond purchase program since late 2013, and analysts forecasting a rise in US interest rates as early as 2015, it could be expected that the domestic rates in T&T could begin rising sometime after (Obviously T&T has many other monetary policy metrics to satisfy before such decisions at CBTT can be made). Therefore, time may be running short for local companies to access favorable rates.
On that note the anticipated TT$1.5 billion bond by TSTT would at least provide one more private sector issue in the local primary bond market.