REMARKS BY PREMIER AND MINISTER OF FINANCE
HONOURABLE ANDREW A. FAHIE
DURING THE SIGNING OF THE LOAN WITH REPUBLIC BANK
First let me say Good day and God’s Blessings to everyone.
I recognise the protocols already established and I thank my honourable colleagues for being here with me also today and the hard working staff of the Ministry of Finance.
God continues to lead the BVI to greener pastures.
We are here at this defining moment to turn a new leaf where we are refinancing the Peebles Hospital Loan.
By doing so, we will help the BVI to realise $1.6 million in savings; it will increase our borrowing ratio and capacity and keep us under the threshold of the Protocols for Effective Finance Management.
One of the things that your Government is committed to is effective and prudent financial management.
To provide the context to why and how we got here, on 2nd October, 2009, the Government of the Virgin Islands signed a loan agreement for $45 million with Banco Popular for the construction of the New Peebles Hospital Project.
Following a legal review undertaken in September 2018, it was opined that the terms and conditions under the agreement were unnecessarily restrictive and onerous given that the BVI is a sovereign borrower.
The balance on this loan which would mature in 2026, as of 30th April 2021 was seventeen million two hundred and fifty thousand dollars (US$17,250,000.00) and it had a variable interest rate comprising US Prime Rate (currently 3.25 percent) plus a margin of 0.75 percent, currently totaling 4.00 percent.
In analysing the Government’s debt profile (Central Government and guaranteed), even in this environment of lower interest rates, it was found that this loan was among the Government's most costly in terms of interest commitments.
The review recommended that early repayment or refinancing would remove the contractual requirement to maintain all Government bank accounts with Banco Popular.
This would enable the diversification of banking risk, and render the ability to negotiate lower fees, and potentially higher deposit interest rates, with other financial institutions.
This action would also eliminate any concerns regarding the right of Banco Popular to consent to, and/or exercise a right of first refusal in relation to, any new financing which, if adhered to, restricts competitive borrowing and risk increasing Government’s funding costs.
Further, it will also remove the restriction on Government’s ability to sell assets.
What all of this simply means is that the way the Peebles Hospital Loan was structured it was very burdensome and restrictive on the Government and people of the Virgin Islands.
And by either paying off this loan or refinancing it on more favourable terms, these burdens could be significantly reduced and some of the very restrictive conditions that came with it could be done away with. And this is what we are doing today with Republic Bank, the newest bank to operate in our jurisdiction.
In light of the continued impact of the COVID-19 global pandemic – the worst pandemic to hit the world in the last 100 years - on our tourism industry and by extension, the prolonged negative implications for our economy, your Government is currently reviewing its debt strategy and, if these concerns with the Banco loan were not addressed, this loan would negatively impact Government's access to future affordable and sustainable loan financing.
The Government made numerous attempts, since 2018 to re-negotiate the restrictive terms and conditions for this Peebles Hospital loan.
After these negotiations were unsuccessful in eliminating the critical clauses as requested, the Ministry of Finance began the process of developing a strategy to repay or refinance this loan.
The strategy chosen was to pay off the balance of the loan on 31st May, 2021, which was $17,250,000, and accrued interest for the period in the amount of $57,750. Therefore, the amount of the repayment was $17,307,750.
To ensure the amount being repaid was replaced in short order, a restricted tender was arranged for a new five-year loan facility for $17,250,000 to be signed and drawn after the repayment of the Banco Popular loan.
Republic Bank Limited emerged as the successful bidder for this new loan facility.
I am pleased to say that there is no increase in Central Government’s debt stock, as this new loan would only be replacing the recently settled loan with Banco Popular.
Therefore, the value of the loan remains unchanged at $17,250,000, but at a fixed interest rate of 1.51 percent offered by Republic Bank compared to the 4.00 percent floating interest rate of the recently paid off Banco Loan.
With this interest rate, the Government would realise savings to the tune of $1.5 million over the period June 2021 to June 2026.
In addition to the substantial interest savings just mentioned, the Government would be saving an additional $100,000 in annual fees normally paid on the Banco loan.
Therefore, over the period from June 2021 to June 2026, acquisition of this new loan arrangement would save the Government about $1.6 million.
In going hand-in-hand with this much-needed savings, the reduced interest cost means a decrease in the Government’s debt service cost, which translates to a reduction in our forecasted debt service ratio under the Protocols for Effective Financial Management.
This means the BVI will emerge from this signing in a stronger position in the metrics of the Protocols that if we had not refinanced the loan as we are doing now.
Republic Bank has also taken the Government’s suggestion to add a moratorium option so that we can postpone loan payments for six months in the event of catastrophic events, such as natural disasters and economic shocks.
I cannot overstate how helpful this additional flexibility would be for our Government as we continue to navigate this uncertain and ever changing economic environment. This is our first loan with Republic Bank, and I am extremely pleased to be entering into such a favourable agreement with this institution.
I would like to thank the Bank for extending such favourable terms and conditions to the Government, which is extremely helpful in this challenging economic time. My Government looks forward to an excellent working relationship with Ms. Marion Blyden and her team at Republic Bank.
Successful negotiations for this loan would not have been possible without the hard work, commitment and dedication of the staff at the Ministry of Finance, and of our United Kingdom Debt Advisor, Mr. Alex Musson who guided the successful negotiations with Republic Bank. I also must say that we do thank Banco Popular for the time that we were doing business with them in this respect, as we do continue to do business with them in other respects.
It has been attempted numerous times in the past without much success, to renegotiate this loan, but it did lay the groundwork for us to so that we can be able now to ensure that we do save the Government some money; that we ensure that we also stay within our ratios in the Effective Financial Management Protocols and this gives us more flexibility to do certain things financially.
This is indeed a great accomplishment by the Ministry of Finance, and for the people of the Virgin Islands and as Minister of Finance I want to thank Acting Financial Secretary Mr. Jeremiah Frett and his entire team because, it has indeed been a team effort to accomplish this. And I cannot forget one of our team members in the Ministry of Finance, Mrs. Phillip for her hard work.
Here we are today turning a new page in the best interest of the people of the Virgin Islands and that’s why I continue to say God continues to lead the BVI into greener pastures and to God be the Glory.
We thank you.