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Sunday, June 04, 2006
Bauxite bond default
Government's position difficult to understand - Bankers Association President

"I think the position the government is taking is very difficult to understand," said the President Michael Archibald of the Banker's Association, in relation to the government's default on its US$20M bauxite bond, which matured on May 17.

Archibald is also Managing Director of the National Bank of Industry and Commerce(NBIC), which will be known as Republic Bank (Guyana) Ltd from tomorrow.

The Banker's Association president said that the government's move could impact on its credit rating and make it difficult to borrow in the future. In addition, Archibald observed that the cost of borrowing could also increase, adding that the capital market was founded on borrowers keeping their word.

It is his view that the government should resolve this issue "as quickly as possible" in a way that preferably would not see investors receiving less than their investment. The government has signalled that it is seeking Paris Club Terms. Paris Club relief under the Cologne Terms can go up to 90 per cent.

Chairman Yesu Persaud of Demerara Bank Ltd said on Friday that the government defaulting on its bond sent the wrong message. "I hope it will be resolved, it is not a good message to investors," said Persaud.

While financial analyst Patrick van Beek told Stabroek News on Friday that the government's action would mean that its creditworthiness would have "declined immeasurably" and he labelled the move "incomprehensible."

Van Beek explained that it made no sense to default "especially given the liquidity in the local market." He went on to say that the government had the option of issuing long-term Guyanese dollar bonds to repay the US dollar bonds.

Bank of Guyana Governor Lawrence Williams told Stabroek News during the Presidential Summit held at the International Conference Centre, Liliendaal early last month, that banks had kept in excess of 12% of their total liabilities as reserves with the Central Bank. This, the governor said, signalled excess liquidity.

The bauxite bonds were issued in 1994 to a number of big and small creditors following restructuring of the bauxite industry. These creditors included Green Mining, Esso Standard Oil, Guybulk Shipping and Boskalis. A large quantity of these bonds was subsequently bought by Citizens Bank Limited at a discount, and through sub-participation agreements. Around 20-25 institutional investors including several pension funds hold the bonds.

In a comment, Citizen Bank Managing Director Alan Parris labelled the move by the administration as "ridiculous" and said that Citizens Bank would be taking measures in regard to government's stance.

Stabroek News