Debt looms large

The bill won’t come due during the term of this Cayman Islands government, or the next.  

However, a $261.3 million balloon payment on a 2009 government bond offering will have to be paid in November 2019 and government insiders find it likely officials will have to refinance that debt – i.e. borrow again – to pay it off.  

One problem: The United Kingdom, at this stage, has forbidden its overseas territory from any further long-term borrowing.  

“The point [raised in this article] is going to have to be one of the first policy positions a new administration will have to take up,” said Deputy Premier Rolston Anglin last week. “What will we do to 
meet that target?”  

Mr. Anglin said during Thursday’s press briefing that when the former United Democratic Party administration took over government in 2009, there were a number of high-dollar projects to complete.  

“The commitment to continue those projects meant that we had to put in place a borrowing package somewhere in the order of US$312 million. The decision that was taken at the time was that bond would be one that would have a balloon payment coming 10 years 
hence, now 2019.”  

The UK advised establishing what’s known as a “sinking fund” to put aside certain amounts of cash to help pay off that looming debt and others the Cayman Islands will have to pay in the coming years. However, Mr. Anglin admitted neither the interim government nor the former UDP government had done so.  

“Therefore, if you look at government’s capacity to raise funds in this economy, I think we just have to be honest with the public,” he said. “There isn’t any real possibility that we’re going to be able to have that money extracted from the economy.” 

One way would be to simply take out more debt to repay the bond issue, but Mr. Anglin said he doesn’t support that and it’s not known if by the year 2019 whether that option will be available to the Cayman Islands government anyway.  

Mr. Anglin said the divestment of certain government assets, proposed by former Premier McKeeva Bush, may need to be considered again.  

“I think that we need to look at a number of assets, including [the government administration building], and what sort of sale/lease-back arrangement we could have through an open, transparent public tender system where the aim and objective would be to have this building perhaps placed in a rainy day fund … that Caymanians’ pensions, pension plan providers can actually invest in,” he said.  

Another potential arrangement, for instance, could involve the outright sale of the administration building for which the government would receive cash up front and then lease the office space back for a certain amount per year. Mr. Anglin said that amount of debt could be “taken off the books” and then government make a yearly rental payment for the office space that could be taken out of operational expenditure. “So that we’re not paying $30M a year as we do at present [to retire debt],” he said.  

That solution would only take the government’s debt “off the books”, if it was agreed the government building could be sold with no intention for it to return to government’s possession, according to Financial Secretary Ken Jefferson. Any plan to retain the government building after the lease period would probably result in some liability remaining on the public books, he said.  

Mr. Anglin said there are other assets that could also be considered to make short-term cash to pay off the looming debt.  

“As it relates to the Water Authority[-Cayman], I think it’s time for the government to get out of the utility business,” he said. “We 
could have a very successful procurement of those services.” 

civilGOAP

How much is it really worth? The government administration building on Elgin Avenue in George Town. – Photo: File
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16 COMMENTS

  1. 261 million in six and a half years’ time is roughly 40 million a year. The Government is wasting so much money. No less than 23 million a year to Cayman Airways alone. That is more than half of what would be needed to set aside for repaying the bond! Other islands in the Caribbean do not have an airline of their own and are doing quite well nonetheless. Or even better without the ball and chain. Add to that a cutback in perks for civil service employees, cut the subsidies to the Turtle Farm (another 10 million a year), sell off the Water Authority, tighten the oversight over NBF and CINICO, stop giving scholarships to kids of affluent parents, and the bond can be repaid with no problems. And without raising any new revenue!

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  2. I agree with the post below but the Cayman Government does not have the capacity do do the right thing not many Governments can or will not !
    It’s the nature of the beast !

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  3. Smart move is to refinance now while market conditions are favorable. Couple of different ways to handle the balloon. Refi’s are not new borrowing, so should not be restricted. New payment should be less with interest rates this low. Need to get the experts involved now, not at the last minute. Be careful that new deal is a fixed rate with no balloon and does not increase the overall level of indebtedness. Getting deeper and deeper into debt on the same project is a diabolical trick investment banks like Goldman Sachs pull on unsophisticated government representative’s that in the end bankrupts their jurisdiction i.e. Harrisburg, Pennsylvania.

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  4. A likely outcome to this is that come 2019 Cayman will be no better off because of six more years of governmental infighting and they will find themselves with a bill that’s due which they cannot pay. The UK may not allow them to borrow anymore and there may not be an option to refinance it. At this someone like Dart will be the only one with the mean to pay the debt ‘For Cayman’ which I am sure he would gladly do in return for more control of the island. However people will scream holly hell accusing him of stealing Cayman when in fact it’s your own leaders fault that you lost Cayman.

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  5. A couple of weeks ago we lost the Iron Lady – Margaret Thatcher – while she was unpopular in some quarters she did what needed to be done to reduce debt and the british economy grew strong as a result. Cayman needs someone who understands that the right choice may not be the popular one.

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  6. Why is it that the UDP and its former members are always trying to sell the Government Admin Building. There are way too many government departments, authorities, and statutory bodies paying rent in private buildings. Someone needs to FOI this information and also determine which politicians and their family members have interest in these private buildings.

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  7. Why doesn’t government just give it up and become part of the USA, with several additional counties added to the state of Florida.
    With federal assistance, all debt will be magically absorbed and brushed and flushed away. Washington is happy to persist in foreign aid but nothing is given to its close neighbor, the Cayman Islands. Its about time, we get some of the largess that is bandied about by Washington. Furthermore with Florida’s very liberal firearms laws, it won’t be a crime any more to possess and use guns in particular with the stand your ground law. Its about time Caymans abandoned this very Victorian morality and behavior and joined the 21st century. With ganja legalized, (of course only for medical purposes) we could be forefront in the growth and production of cannabis and there would not be any more need for police and prisons for pot possessors. Miami, and even Tallahassee are so much closer than London. Think of the fuel saved from going back and forth to the capitol with hat in hand (and possibly in the pocket). Good luck.

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  8. Apple, a few years back my friend wanted to sell this building to someone in the Saudi royal family he was their guy in Miami to buy real estate for them. He got no info from the CIG about the property ZERO
    that said I have said many times and that sonic has pointed out We need a real management team to run CIG as a business with a conscious. that is required make 1
    Life would be wonderful
    Perhaps Michael Bloomberg or Richard Branson, maybe even a local like mr parker or ugland or even mr dart

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  9. There is no such thing as efficient Government or Crown corporations, money is not the bottom line, people are.

    If you want to get out of a hole you have to stop digging!

    Shed the overburden of inefficient management and dump unwieldy and costly business’s.

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  10. For many years now – both in my newspaper columns and on my personal blog (Barlow’s Cayman) – I have been begging MLAs to act responsibly and stop wasting precious money. All to no avail, of course.

    Our local rulers (politicians and senior Civil Servants) don’t seem to have the wit or intelligence to think beyond raising taxes. In truth, government has more than enough money coming in. If it were to exercise some restraint and eliminate the waste and extravagance, it would be able to pay off its debts in short order.

    The first commenter on this article (want2come…) had some excellent suggestions, but of course they will be ignored too. The strong likelihood is that between now and 2019 nothing constructive will be done, never mind who is elected next month. What a shame!

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  11. Seems NJ2Cay beat me to a prediction. Successive governments will do nothing as they can be counted on to do. Financial crisis will grip the Cayman Islands in 2019 (as they do every financial year). The CIG will default on the bond payment. Dart’s so called vulture fund will swoop in and acquire the debt for pennies on the dollar and further consolidate Dart’s power and influence over the CIG.

    Note that I do not hate Dart as many seem to do. Rather I admire it. In the same way I admire the great white shark for its power, singularity of purpose, and brutal efficiency. I also fear the great white and would keep a respectable distance from one. It’s hard to do that when you’ve let one in your swimming pool and are so stupid as to bellyflop in with it.

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  12. The arrogance of Caymanian politicians beggars the imagination. The concept of building monuments to their egos continues. Many of these politicians expect to not only be returned to the LA but expect to be part of and lead the next government.
    No doubt when they install direct taxation they will blame the previos government but they will not evade the judgment of history.

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  13. Problem is much larger than this balloon payment coming due. A debt crisis of epic proportions is looming for Cayman. When interest rates normalize, Cayman will no longer be able to service her debt. That’s just a fact. Alarm has been sounded. Cayman government…What is the plan?

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  14. I hope you folks realize that my posting was just a bit of sarcasm. I really don’t want unification with the USA and want to remain independent. Read my letter with a bit of humour. I am trying to be a recognized wit but have only reached the half way mark.

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