Further Government borrowing will be needed
The financier selected to obtain some US$185 million in borrowings for the Cayman Islands government had its award for the deal terminated in late January, according to a statement made Wednesday by Premier McKeeva Bush.
The firm, Cohen & Company Capital Markets LLC, was controversially engaged in October to secure the long-term financing, which the government needs to fund both construction projects and some current expenditure. The deal also included an agreement that the New York-based financing company would secure some $19 million in funding to support Cayman Airways.
Premier McKeeva Bush said Wednesday evening in a broadcast address that Cohen & Company could not deliver the cost savings it had once promised.
“On the basis of representations made to Government, the acceptance of the offer from Cohen & Company was calculated to have been approximately US$24 million less than the offer recommended to Government via the Central Tenders Committee process,” he said. “Sensibly, and with the country’s benefit in mind, Government chose the lower cost offer, to try and save $24 million.
“Key amongst the representations made to Government was that a 4.5 per cent interest rate cap could be obtained, at a certain price, so that the rate of interest that Government would pay on its current year borrowing would never exceed 4.5 per cent.
“Government has now been advised that the 4.5 per cent interest rate cap cannot be obtained at the price previously represented to Government. The increase in the price of the interest rate cap is of such magnitude that it would wipe out the cost-minimisation advantage that had been agreed.
“Government has therefore made the prudent decision, effective 27 January, 2011, to terminate its previously announced award.”
The announcement of the financing arrangement was criticised in October by opposition party lawmakers after Mr. Bush’s government overrode a Central Tenders Committee decision with the selection of Cohen & Company as the successful bidder to provide the financing.
In November, Opposition Leader Kurt Tibbetts accused Premier Bush of contravening the law and established bidding practices to obtain the US$185 million financing arrangement.
“The Premier has unlawfully overridden the recommendation of the advisors in his own ministry, the Ministry of Finance technical evaluating team, as well as the decision of the Central Tenders Committee, and has handpicked a New York firm to provide this financing,” Mr. Tibbetts said in November.
The selection of a financier for the government loan involved a protracted and somewhat confusing bidding process during which two separate tenders went out, an eventual bid winner was selected and then ignored in favour of the New York firm, Mr. Tibbetts said.
A joint bid from two locally operating banks – Royal Bank of Canada and FirstCaribbean – was chosen by officials with the Central Tenders Committee.
Premier Bush said in October that the first round of bidders had not presented any proposals that would allow government to consolidate its existing debt, as has been required by the UK’s Foreign and Commonwealth Office.
“I wanted the government to use its collective bargaining power to obtain the best terms possible,” Mr. Bush said. “The concept of negotiating for a better deal does not exist within the traditional approach of the Central Tenders Committee.”
Mr. Bush said Wednesday that Cohen & Company “was the only bidder that categorically stated it would be willing to secure financing for Cayman Airways. None of the other bidders were so positive and supportive of our national airline.”
It is not known what, if any, portion of the US$185 million of borrowing has already been secured through Cohen & Company or any other entity. It was also not clear how much in fees had been paid to Cohen & Company, if any.
Mr. Bush said because of better-than-expected financial performance of government, which should lead to a budget surplus, an assessment would be done to see if the government really needed to borrow the entire amount it had requested.
“We’ll still have to do some borrowing, but it will be less,” he said.