BRIDGETOWN, Barbados – The Barbados government says it will be taking over the BDS$80 million (One BDS dollar=US$0.50 cents) of debt of the operators of the state-owned Hilton Barbados Hotel, even as the opposition the government’s ability to meet its debt obligations in the foreseeable future given “the persistent absence of any significant platform of growth being constructed”
Finance Minister, Ryan Straughn, told Parliament on Tuesday that the government had agreed to take over the debt accumulated by Needham’s Point Holdings Ltd., and would be issuing new Series B bonds to the bondholders.
Straughn said that the agreement, which was reached after “a range” of discussions, would be similar to the government’s debt restructuring in 2018.
Straughn was piloting the debate on the Needham’s Point Holdings Ltd. (Exchange and Issue of Bonds) Act, which makes provision for the exchange of bonds issued by Needham’s Point Holdings Ltd and the issuance of Series B Bonds by Government to those bondholders, and the cancellation of the full outstanding amount of the bonds. It was later passed.
The aggregate amount of the issue of Series B Bonds was BDS$83.75 million.
The 10 -year fixed rate bonds, which were guaranteed by Government at the time of issue in January 2011, were to become due this year. At the time of issue, $80 million was raised by Royal Fidelity Merchant Bank & Trust (Barbados) Ltd. and it was for the purpose of financing the Hilton’s operations.
Straughn, explaining the rationale behind the debt restructuring told legislators of an almost 100 per cent decline in revenue for the hotel over the past year due to the coronavirus (COVID-19) pandemic which brought the tourism and hospitality sector to a standstill for several months.
He said restructuring of the debt was critical to bring some level of certainty to the Hilton’s operation and give it the best opportunity to emerge from the pandemic and be able to be much more viable.
“We believe this provides enough scope to give the entity the ability to be able to move forward and be sufficiently solvent to continue on its path for not just the upgrades but improve the quality of services it would provide,” said Straughn.
“The debt that the Government is taking on now with respect to Needham’s Point and effectively the Hilton Hotel, has come about after a range of consultations that will see the issuing of the Series B Bonds,” he added.
He told Parliament that at the time of the 2018 debt restructuring Needham’s Point was “not considered “an eligible state-owned enterprise” as other state-owned enterprises were required to, from the Ministry of Finance’s perspective, to restructure their debt.
“The reality of the situation then compared to now is starkly different because at that time tourism was still doing very reasonably well. The company Needham’s Point, which operates the Hilton Hotel, [its] revenues were still performing in the way they were intended to service its debt.
“Our view, quite frankly, was that the entity should at that particular point chose to participate in the debt exchange but it did not,” explained Straughn. He said provisions were made for the entity to get involved in the debt exchange offer “at the time the debt exchange was about to expire”.
Similar to the debt restructuring in 2018, the new Series B bonds will have maturities ranging from five to 15 years, attracting one per cent interest per annum for the first three years, 2.5 per cent for year four, and 3.75 per cent to maturity.
Interest payments will be made quarterly, with the first payment due on June 30, 2021.
The debt restructuring deal comes with a natural disaster clause, which would allow for the suspension of debt payments for a specified period, in the event that Barbados is adversely affected by a natural disaster including earthquake, tropical cyclone and flood.
But in his contribution, Opposition Leader, Bishop Joseph Atherley questioned the government’s rationale for the debt restructuring at this time, saying the loss of economic activity due to the pandemic was only “partly true.
“Anybody with any modicum of understanding would recognize that is partly true. I think equally they would recognize that is not necessarily wholly or fully true. Therefore, the question has to be raised as to the viability of the Hilton’s operations or the Needham’s Points Holdings’ operations prior to COVID,” said Atherley, questioning the government’s ability to meet its debt obligations in the foreseeable future given “the persistent absence of any significant platform of growth being constructed.
“The question would be, my concern would be, my interest would be, to what extent are we positioning the Hilton to earn and to adequately earn so that it can properly fund its operations and meet its obligations. It is one thing to incur debt, but you have to be able to service effectively and punctually, that debt.
“That debt must be repaid therefore either by ourselves or by those who come after us,” Atherley told Parliament.
