By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Central Bank and National Insurance Board (NIB) were yesterday urged by a former Mortgage Corporation chairman to “stand their ground” and resist the Government’s plans for the latter to issue more bonds.
Dr Duane Sands, the FNM senator, said his immediate reaction to Tribune Business’s report on the possibility of the Mortgage Corporation issuing more debt securities was that the Government “can’t be serious”.
Given its already-stressed financial position, Dr Sands argued that it would amount to “irresponsible behaviour” for the Christie administration to burden it with more debt repayment obligations.
With the Mortgage Corporation already facing a $106 million ‘deficit’ between available funds and its debt repayment obligations, Dr Sands warned that issuing more bonds would threaten both its - and the Government’s - financial sustainability.
“When I read your story, I thought: These guys can’t be serious,” the former Mortgage Corporation told Tribune Business. “Here we go again. I don’t think we get it.
“When will we acknowledge that we’re hoping to get the fiscal position of both the Mortgage Corporation and of the country to recover, not to make it worse.”
He was reacting to revelations by Kenred Dorsett, minister of the environment and housing, that the Central Bank and Ministry of Finance are due to meet this week to determine whether the Bahamas Mortgage Corporation’s financial position will allow it to issue more bonds.
Suggesting that the answer should be a resounding ‘no’, Dr Sands said the National Insurance Board (NIB) should join the Central Bank in standing firm against pressure for the Mortgage Corporation to finance further government housing projects.
He explained that he was including the NIB in this because it was likely to be the biggest buyer of Mortgage Corporation bonds, based on its history.
“I think at some point in time we need to stop this nonsense,” Dr Sands told Tribune Business. “I would hope the Central Bank would not only say ‘no’, but that NIB’s investment committee ought to take its fiduciary responsibilities seriously and say it would not be an ideal investment for NIB.
“We’ll now see whether the Central Bank will stand its ground, and whether the investment committee at NIB will be mindful of their criteria for new investments.”
The Bahamas Mortgage Corporation’s last published accounts, for its 2013 financial year, showed that NIB, as the Bahamas’ social security system, holds $102.7 million or 60.3 per cent of the former’s outstanding bonds.
Dr Sands yesterday implied that NIB’s risk exposure to the Mortgage Corporation had already prudent limits, and added: “I hope the Minister for NIB [Shane Gibson] and minister for housing realise they owe the Bahamian people an obligation to be reasonable and prudent in the exercise of their responsibilities.”
Mr Dorsett had referred to a 2,000-3,000 strong ‘waiting list’ for government housing, and Dr Sands suggested its desire for Mortgage Corporation financing to expand this programme now was directly linked to the upcoming general election.
“This is more than just trying to pander to the appetite of the voting public,” he suggested. “This smacks of a strategy that is somewhat muddy, and has got the Mortgage Corporation, the Department of Housing and the Ministry of Housing in trouble before.
“They want to be all things to all men, stimulate the construction industry, provide jobs for the unemployed, be the saviour of the masses and give the party faithful access to homes.”
The Mortgage Corporation’s 2013 audited financial statements highlighted the ‘ticking financial timebomb’ which, if not dealt with, threatens to expose Bahamian taxpayers to a further financial bail-out.
Its ‘bond sinking fund’, intended to finance the repayment of debt principal when its bond issues mature, held just over $64 million at end-June 2013.
While a seemingly significant sum, it covered just 37.7 per cent of the $170.168 million worth of bond principal that remains outstanding and owing.
The ‘crunch’ will be hit between 2023-2026, just seven years away, when some $110 million of that principal becomes due, unless corrective action is taken now.
Dr Sands said the Mortgage Corporation’s 40 per cent loan delinquency ratio meant insufficient income was being generated from borrower repayments to fully finance the ‘Sinking Fund’.
“The Corporation already has trouble meeting its medium and long-term obligations in terms of cash flow, while the sinking fund is not healthy,” he added. “I can only say that it is irresponsible to float bonds in this type of environment.”
“I’m sure that my comments will fall on deaf ears, or somebody will allege that I don’t care about people needing a home, and that we’ll worry about the fiscal consequences down the road.
“Desperate people do desperate things. This is an act of fiscal desperation and political desperation,” Dr Sands said of the Government.
“They think they’ll get some brownie points and be seen as the saviour of the masses. If it weren’t so serious it would be laughable.”
