An international firm is advising investors to buy Barbados bonds, but it is concerned about the island’s “less-than-stellar fiscal performance” and overall economic “underperformance”.
CIBC World Markets, the investment banking subsidiary of the Canadian Imperial Bank of Commerce, made this known in its latest Caribbean Market Overview.
This came as another Canadian entity, Scotiabank, said Barbados’ sovereign creditworthiness “remains a concern” and warned that the island was “highly susceptible to external shocks”.
In his new analysis, CIBC World Markets executive director and emerging market macro strategist, John H. Welch, recommended US$350 million in Barbados bonds to international investors.
In 2001 Barbados issued US$150 million in 20 year bonds in the international capital market at an annual interest rate of 7.25 per cent. Also, in July 2010 the current administration floated a 12-year US$200 million issue. These instruments are due to mature a year apart in 2021 and 2022.
Welch referred to concern the International Monetary Fund raised about Barbados’ debt and fiscal deficit, which he said “explains Barbados’ underperformance during the [third] quarter”.
However, he said the positive news was that the US$200 million bonds “managed to tighten 28 [basis points] and are now trading at 592 [basis points] over [United States] Treasuries”.
“At these levels, we think investors are compensated for risk, and continue to recommend [the Barbados US$200 million bonds],” he added. Welch said CIBC World Markets was also recommending the US$150 million bond issue to buyers although overall there was some “underperformance” of Barbados bonds.
“We have remained positive on Caribbean credits, and we are not at a point of changing our position. We do not see major obstacles to continued good performance despite the US Federal Reserve inching closer to tightening.
“Hence, we would recommend buying,” he asserted in reference to the US$150 million Barbados bonds and others from Aruba, The Bahamas, Bermuda, the Dominican Republic, Jamaica and the Cayman Islands.
Meanwhile, Scotiabank Global Economics analyst Erika Cain, commented on Barbados sovereign debt and credit ratings and said “after a series of rating downgrades in recent years, Barbados’ sovereign creditworthiness remains a concern”.
“Indeed, the country’s elevated fiscal deficit, rising debt burden, and reliance on foreign tourism demand leaves Barbados highly susceptible to external shocks,” she added. (SC)