Gov’t floats $35m bond to repurchase bank shares

The government of St. Vincent and the Grenadines floated a three-year EC$35 million bond to raise the EC$32.4 million to repurchase 31 per cent of the Bank of St. Vincent and the Grenadines.

The remaining funds will go to road repairs, Prime Minister Ralph Gonsalves told Parliament on Thursday during debate of the the Supplementary Appropriation Bill, 2017.

The repurchase of the shares comes seven years after the Gonsalves administration sold to Eastern Caribbean Financial Holding, (ECFH) for EC$42 million, a 51 per cent share in the bank, which was then known as the National Commercial Bank (NCB).

The sale was made shortly after the government had borrowed EC$100 million to help capitalise the bank.

“This bond was floated, particular institutions immediately said that they will purchase,” Gonsalves, who is also Minister of Finance, told Parliament on Thursday, adding that the Bank of SVG itself said that it would purchase EC$10 million of the bonds.

The General Employees Co-operative Credit Union (GECCU) said it would purchase EC$5 million, and the state-owned National Insurance Services (NIS) will purchase EC$10 million.

“And we are raising $35 million,” Gonsalves said, adding that the bond was “quickly subscribed by businesses and individuals from Dominica, St. Lucia, Antigua, Grenada, St. Vincent and the Grenadines.”

He said that within a week of the NIS buying EC$10 million of the shares, a regional financial intermediary based in St. Vincent contacted he NIS and asked them to sell $5 million of the bonds “at par or even, to sweeten it for the NIS, they would even consider a premium”.

However, the NIS said it is prepared to hold on to the share, Gonsalves said, noting that the interest on the bonds is 6 per cent per annum for three years.

He said a credit union, which he described as a “big investor in St. Vincent and the Grenadines”, said that when the time comes they are hoping that they can buy EC$5 million of the bank shares because they would like to be part owner of the Bank of St. Vincent and the Grenadines.

“It’s an attractive instrument and of course, the purpose for which the bond has been floated to buy the bank, if the last two years you are making 7.5-8 million dollars in pre-tax profits, you are doing pretty well.”

Gonsalves had announced the repurchase earlier this month and gave further details during Thursday’s meeting of Parliament.

He told lawmakers that the Bank of St. Lucia, which is also owned by ECFH, had a pre-tax loss of EC$105.3 million in 2016, adding that in January 2017, the board decided to write off non-performing loans of EC$102.5 million.

This required an additional provisioning of EC$44.9 million. “In fact, the total provisioning for 2016 was EC$128.8 million,” the prime minister said.

On the other hand, the Bank of SVG ended 2016 with a pre-tax profit of EC$7.6 million.

“This was 500,000 less than the previous financial year in 2015,” he said, adding that this was due to increased provisioning by the Bank of SVG of EC$2.6 million in the financial year ending 2016 to take care of non-performing loans.

“So you can see, comparatively, the Bank of St. Vincent and the Grenadines was doing pretty well and the Bank of St. Lucia was doing badly. In fact, it is because the Bank of St. Lucia was doing so badly that Eastern Caribbean Financial Holdings, the parent company, had a loss as at December 31, 2016, of $111.8 million,” he said.

The prime minister said his government knew of difficulties involving the Bank of St. Lucia.

“And we felt that nevertheless, a merger could take place and discussions were going forward in 2015.

In 2016, they reached a stage where they said both sides had to meet and make a final discussion.

The previous government in Castries, which has significant shares in ECFH had been party to the decision of the Monetary Council of the Eastern Caribbean Currency Union to try to move towards strengthening the nexus and leading towards merger or amalgamation.

However, directors of the Bank of St. Lucia at the time of that government had not moved “in my view, with sufficient dispatch,” Gonsalves said.

The new government in Castries is in favour of the same policy “though when they saw the extent of the hole, they thought that they should have another regional financial institution to join with us”.

Gonsalves said a big meeting was called, including Bank of St. Lucia with ECFH, Bank of SVG, Prime Minister Allen Chastanet of St. Lucia, representative of the Eastern Caribbean Central Bank (ECCB), Governor of the ECCB, Timothy Antoine “and also persons from this regional financial institution which had expressed an interest in purchasing majority shares in Eastern Caribbean Financial holdings”.

However, Gonsalves said he told that regional financial institution that they were not a proper fit for the Bank of SVG.

He further said he “predicted that they would make a derisory offer for the shares in Eastern Caribbean Financial Holdings, the majority shares, which the Government of St. Lucia would be bound to reject. And so said, so done”.

Gonsalves said that with that regional institution out, the directors of the Bank of St. Lucia reassessed their position and said “they would try to see if they can clean up their bank and down the road, we can talk about a merger”.

He said an accounting firm had found that the assets of the Bank of SVG were more than three times the value of that of the Bank of St. Lucia.

“The upshot of all this is that we decided to go our separate ways — Bank of St. Lucia and Bank of St. Vincent and the Grenadines — but not completely, meaning that we would buy 31 per cent of the 51 which Eastern Caribbean Financial Holdings held in the Bank of St. Vincent and the Grenadines, and leave the Eastern Caribbean Financial Holding with 20 per cent.

“So there is still a nexus between ourselves and a regional financial institution, that is to say, Eastern Caribbean Financial Holdings,” Gonsalves said, adding that the National Insurance Services in Kingstown owns just under 10 per cent of the shares of ECFH.

The 31 per cent of the shares in Bank of SVG that the government is repurchasing represents 4.45 million common shares, costing EC$32.365 million.

Gonsalves noted that it has been said that shares of the National Commercial Bank had been sold to ECFH and others at a lower price than the government is repurchasing them at.

‘The simple reason is the valuation of the shares then was less than the valuation now. A simple question. I don’t do the valuation; the experts do the valuation and that is the number, which was arrived at in both circumstances,” Gonsalves said.

With the repurchase, the government’s share of the bank moves from 12 to 43 per cent, while ECFH will retain 20 per cent — down from 51 per cent.

The National Insurance Services will retain its 20 per cent of the shares, while a number of private shareholders will continue to hold 18 per cent.