Thursday, July 9, 2009

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Central Bank: CAB deal will drain foreign reserves by $20m max By VERNON CLEMENT JONES ~ Guardian Business Editor ~ vernon@nasguard.com: The Central Bank is confirming it has approved that controversial $80m share buyback by Cable Bahamas — a deal it says will bleed foreign currency reserves by no more than $20m. "It has been approved," Central Bank Governor Wendy Craigg told Guardian Business Tuesday. "Everyone is sensitive to the effects on the foreign reserves, including Cable Bahamas, and the transaction will involve a conversion of no more than $20m." The affirmation comes on the heels of a Cable Bahamas press release boasting about the deal and the bank's approval. "This is another critical milestone in our plans to bring Cable Bahamas, in line with other public companies in the Bahamas, by extinguishing unique and special privileges associated only with the shares held by Columbus Communications," now-President Tony Butler said in a written statement sent to Guardian Business yesterday. "As important, it will also better position us with the additional capital needed to offer the converged communications services that our customers have been demanding." The governor's comments notwithstanding, there's real concern the Central Bank approval may weaken the country's financial position in eating away foreign currency reserves already hit by the recession and the loss of millions of dollars in tourism-spend and foreign investment. Under the deal to buyback the controlling interest of Columbus — the Barbados-based company that created Cable Bahamas and shared a CEO with the company — CAB will take out a $105 Million senior bank credit facility with RBC; make a 4,000,000 preferred share offering, half of which will go to local investors; and formally purchase those 5,954,600 ordinary shares held by Columbus for $80 Million. Exact details haven't yet been made available, but it's possible that $20m will come from within this jurisdiction. It means that the Central Bank will need to convert those Bahamian dollars to U.S. and in the process draw down from its cache of foreign currency. It's a controversial move considering the recession and the reduced foreign investment we rely on to bring greenbacks into this country. It's for that very reason the Central Bank has encouraged ordinary Bahamians to rein in on foreign purchases that would tap the reserves. In giving Cable the green light it is now opening itself up to charges it is applying a double standard. Ironically, in fact, the curtailed demand for U.S. currency by Bahamians may have helped pave the way for the CAB share purchase. "While the prospects of firmer oil prices could increase the negative pressures in the external current account, the overall balance is not expected to deteriorate, as the demand for other imports has moderated alongside abated levels of foreign investment and consumer spending," reads its latest monthly economic report, for May. "This trend, along with public sector's foreign currency borrowing activities, is likely to sustain relatively healthy levels of external reserves." Wednesday, July 8, 2009