MORE MULTI-MILLION DEBTS FOR SEYCHELLES!

MICHEL PILES UP MORE INTERNATIONAL DEBTS IN ISSUING MORE JUNK BONDS

The three Musketeers of the Seychelles Economy.

A new issue of Seychelles sovereign debts have been announced in the international capital market. The announcement first appeared on the trading screens of Bloomberg (the world’s largest financial information company) on 09th August 2007. The amount of debt the Government of President Michel is seeking to place with the international financial community this time is worth (US$ 30,000,000) thirty million American Dollars!

The new issue will bring the total sovereign debt of Seychelles to the international capital market to US$280 million in the space of one year. The first issue, worth US$ 200 million, was on 09th September 2006.

Although details are scarce, the new bond issue is expected to replicate the previous one, which pays a fixed interest rate on the face value of the bond, of nine and one eighth percent with a maturity or life of five years. According to Bloomberg, these bonds are being traded today in the market at 100.26/bid and 100.52/offer. This means that investors are prepared to buy the bonds with a premium of 0.26% of their face value while sellers are prepared to accept a premium of 0.51%. Bloomberg also indicated that the first installment of interest on these bonds (US$ 9,125,000) was due to be paid on 3rd April 2007. During April, the official foreign currency reserves held by the Central Bank dropped by US$19 million.

Last year the US$ 200 million 5-year bonds were sold on the back of a B credit rating issued by the international credit rating agency Standard and Poor’s. This was the first time Seychelles had obtained a credit rating. The purpose of a credit rating is to give an indication to international investors of the risk profile of a country or company wishing to borrow money in the international capital market. Under Standard and Poor’s own yardstick bonds issued by countries with a B credit rating are known as junk bonds – in other words high risked debts.

At the road show to publicise the bonds last year, one financial journal indicated of the fear that Seychelles would be piling up more debts with the new issue. This fear was abated when Central Bank Governor, Francis Chang Leng assured investors that the proceeds would be used to retire old debts. In other words, Chang Leng had made a commitment that the total external debts of Seychelles would not increase. This, it appears, has turned out not to be the case.

During the presentation of the budget by Minister of Finance, Danny Faure, in early December last year, it was revealed that our total international debt had actually increased by one billion rupees because of the bonds. On 31st December 2006, our international debt had reached a record US$ 292.4 million using the monthly average dollar exchange rate published by the Central Bank for December. Using the monthly average dollar exchange for July 2007, however, our external debt, together with the new US$ 30 million issue would reach US$ 338 million, a record amount.