STATEMENT BY PREMIER AND MINISTER OF FINANCE DURING THE NINTH SITTING OF THE THIRD SESSION OF THE FOURTH HOUSE OF ASSEMBLY ON GOVERNMENT OF THE VIRGIN ISLANDS’ REFINANCING OF BANCO POPULAR PEEBLES HOSPITAL LOAN TO REALISE $1.6M IN SAVING OVER THE PERIOD JUNE 2021 TO JUNE 2026
17TH JUNE 2021
(Premier and Minister of Finance moved a Motion, which was accompanied by the following Statement)
Mister Speaker, on 2nd October, 2009, the Government of the Virgin Islands signed a loan agreement for $45 million with Banco Popular for the construction of the New Peebles Hospital Project.
Mister Speaker in a legal review undertaken in September 2018, it was opined that the terms and conditions under the agreement were unnecessarily restrictive and onerous given that the BVI is a sovereign borrower. Mister Speaker, the balance on this loan which would mature in 2026, as of 30th April 2021 was seventeen million two hundred and fifty thousand dollars (US$17,250,000.00) and it had a variable interest rate comprising US Prime Rate (currently 3.25 percent) plus a margin of 0.75 percent, currently totaling 4.00 percent.
Mister Speaker, in the analysis of Government’s debt profile (Central Government and guaranteed), even in this environment of lower interest rates, this loan was among the Government's most costly in terms of interest commitments. Mister Speaker, the review recommended that early repayment or refinancing would remove the contractual requirement to maintain all Government bank accounts with Banco Popular. This would enable the diversification of banking risk, and render the ability to negotiate lower fees, and potentially higher deposit interest rates, with other financial institutions.
Mister Speaker, this action would also eliminate any concerns regarding the right of Banco Popular to consent to, and/or exercise a right of first refusal in relation to, any new financing which, if adhered to, restricts competitive borrowing and risk increasing Government’s funding costs. Further, Mister Speaker, it will also remove the restriction on Government’s ability to sell assets. Mister Speaker, in light of the continued impact of the pandemic on our tourism industry and by extension, the prolonged negative implications for our economy, your Government is currently reviewing its debt strategy and, Mister Speaker, if these concerns with the Banco loan were not addressed, this loan would negatively impact Government's access to future affordable and sustainable loan financing.
Mister Speaker, the Government made numerous attempts, since 2018 to re-negotiate the restrictive terms and conditions for this loan. Mister Speaker after these negotiations were unsuccessful in eliminating the critical clauses as requested, the Ministry of Finance began the process of developing a strategy to repay or refinance this loan. Mister Speaker, the strategy chosen was to pay off the balance of the loan on 31st May 2021, which was $17,250,000, and accrued interest for the period in the amount of $57,750. Therefore, Mister Speaker, the amount of the repayment was $17,307,750. However, Mister Speaker, to ensure the amount being repaid was replaced in short order, a restricted tender was arranged for a new five-year loan facility for $17,250,000 to be signed and drawn after the repayment of the Banco Popular loan. Mister Speaker, Republic Bank Limited emerged as the successful bidder for this new loan facility.
Mister Speaker, I would like members to note that there is no increase in Central Government’s debt stock, as this new Loan would only, only be replacing the recently settled loan with Banco Popular. Therefore, Mister Speaker, the value of the loan remains unchanged at $17,250,000, but at a fixed interest rate of 1.51 percent offered by Republic Bank compared to the 4.00 percent floating interest rate of the recently paid off Banco Loan. Mister Speaker, with this interest rate, the Government would realise savings to the tune of $1.5 million over the period June 2021 to June 2026.
Mister Speaker, in addition to the substantial interest savings just mentioned, the Government would be saving an additional $100,000 in annual fees normally paid on the Banco Loan. Therefore, Mister Speaker, over the period from June 2021 to June 2026, acquisition of this new Loan arrangement would save the Government about $1.6 million. Mister Speaker, going hand-in-hand with this much-needed savings, the reduced interest cost means a decrease in the Government’s debt service cost, which translates to a reduction in our forecasted debt service ratio under the Protocols for Effective Financial Management. Mister Speaker, Republic Bank have also taken the Government’s suggestion to add a moratorium option so that we can postpone loan payments for six months in the event of catastrophic events, such as natural disasters and economic shocks.
Mister Speaker, I cannot overstate how helpful this additional flexibility would be for our Government as we continue to navigate this uncertain and ever changing economic environment. Mister Speaker, this is our first loan with Republic Bank, and I am extremely pleased to be entering into such a favourable agreement with this institution. Mister Speaker, I would like to thank the Bank for extending such favourable terms and conditions to the Government, which is extremely helpful in this challenging economic time. My Government looks forward to an excellent working relationship with Ms. Marion Blyden and her Team.
Mister Speaker, successful negotiations for this Loan would not have been possible without the hard work, commitment and dedication of the staff at the Ministry of Finance, and of our United Kingdom Debt Advisor, Mr. Alex Musson who guided the successful negotiations with Republic Bank. Mister Speaker, I also must say that we do thank Banco Popular for the time that we were doing business with them in this respect, as we do continue to do business with them in other respects.
Mister Speaker, this is indeed a great accomplishment by the Ministry of Finance, and as Minister of Finance I want to thank Acting Financial Secretary Mr. Jeremiah Frett and his entire team because, Mister Speaker, it has indeed been a team effort to accomplish this Mister Speaker. It has been attempted numerous times in the past without much success, but it did lay the groundwork for us to so that we can be able now to ensure that we do save the Government some money; that we ensure that we also stay within our ratios in the Effective Financial Management Protocols and this gives us more flexibility to do certain things financially.
Mister Speaker, I so move.