Return of 4.75% on GuySuCo bonds is too low to attract ‘accredited’ investors

Dear Editor,

I refer to the article titled, “Valuations of shuttered sugar estates 90% complete -SPU says US$30m bond underpinned by gov’t guarantee” (SN July 6).  I share a thought or two.

I would like to step forward to do one patriotic duty through investing in those GuySuCo bonds.  I hesitate and weigh; and then I weigh some more and still come up short, way short.  The bonds are nonrated, which could mean that a rating was not applied for, among other things.  Also, it does not mean that they are distressed debt, the current euphemism for what was previously scorned as “junk” bonds.  In Guyana, however, I am certain that no one would disagree that the underlying corpus, what is left of GuySuCo and wherever it resides, has been in a severely distressed state for a considerable period of time.  That is part of my hesitancy, assets and all, with this equivalent of a 600 billion Guyana dollar offering.

Further, I notice, with some satisfaction, that this issue is reserved for “accredited investors” which is a solid safeguard, if the definition of “accredited” remains as I know it.  I think I should qualify and see an opportunity, but not at 4.75% for a nonrated bond in the prevailing interest rate climate.  I say that 4.75% would be a hard sell to interested investors, who are desirous of making a wise investment.  Sure, that rate compares nicely (depends on who is approached) with current bank rates and low yielding US Treasuries.  It must be remembered that the latter are the bluest of blue chips, and that there are lots of exotic investments outside of Guyana that would generate returns far north of 4.75%, if one is prepared to take the associated risks, which may be lower than the local ones.  These bonds are a risk (like any other) and need more to move them off the inventory. It is why I say that on the face of it, this is an investment that is neither enticing enough nor rewarding enough.  I do not think it is competitive; the offering circular/memorandum might help to persuade me differently. Insurance coverage for principal loss (at least) would be helpful, if not justify 4.75%. I do not think that is part of the picture, as that would in some instances generate a triple-A rating; plus it is very expensive.

Now with due respect to the PwC experts, I believe that there ought to be a richer spread from the baseline of “risk-free” highly rated bonds representing premiums for liquidity risk, credit risk, and default risk.  I should add political and emerging markets risks have to be considered, too.  In terms of that government guarantee, I will be kind: governments like ours may mean well, but those things have proven to be worthless in other arenas.  On another note, in the table of rates embedded in the SN article referenced above, the interest rates offered by other issuers from the region are more than double as in Suriname and Belize when compared to Guyana.  And those rates are for investment grade bonds, some admittedly with the qualifier of being highly speculative.

Editor, I submit that those regional 10% rates are closer to reality and expectations, than the less than 5% identified for nonrated GuySuCo bonds.  Unless potential local accredited investors are sentimental and highly patriotic, I am struggling to figure out how this issue, when finalized, is going to attract hard-nosed, cold-blooded sophisticated money.  I do not think it is going to gain wide currency.

Personally, I could settle for an 8% return.

Yours faithfully,

GHK Lall

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