The Bermuda Government yesterday raised $500 million in a public bond offering that was six times oversubscribed.

Government will pay a fixed interest rate of 5.6 percent on the 10-year bonds, or a total of $28 million a year.

Originally, the intention was to raise $400 million, but the Financial Secretary Donald Scott revealed last night that the strong global demand, which generated an order book of $2.4 billion, had enabled Government to upsize the transaction to $500 million.

Mr. Scott added that the debt sale had attracted 146 investors, 10 percent from Bermuda. The other geographical areas of greatest demand were North America (60 percent), Europe (20 percent) and Asia and the Middle East (10 percent).

The Government is saddled with a debt burden that has soared in recent years and total debt outstanding was $826 million at March 31 this year.

The proceeds of the bond sale will be used to repay a bridge loan covering a revolving credit facility, short-term indebtedness with local banks of around $140 million and to fund ongoing capital expenditure programmes.

Finance Minister Paula Cox was said to be overseas and unavailable for comment.

Yesterday’s sale was managed by HSBC and followed a “non-deal roadshow” designed to drum up global investor interest in the bonds. This involved a delegation led by Mr. Scott, with Assistant Financial Secretary (Economics and Finance) Anthony Manders, Director of Budget Tina Tucker and Economic Adviser Hasan Durham meeting some 35 high quality investors in Singapore, Hong Kong, London, Los Angeles, Boston, New York and Hamilton earlier this year.

Mr. Scott said the bonds had been priced at the lowest yield ever offered by a Caribbean region issuer in the US dollar public bond market and it locked an historically low interest rate for the 10-year duration.

”The Ministry of Finance borrowing strategy is set well in advance of a given financial year taking account of long term capacity to repay debt, the view of debt capital markets, the borrowing requirement signalled by planned capital investment in infrastructure for Bermuda’s sustained future and other important policy factors,” Mr. Scott toldThe Royal Gazette.

However, the pricing of the bonds attracted criticism from Acting Shadow Finance Minister Grant Gibbons, who said it was bad news for the taxpayer.

”The Government will undoubtedly spin this issue as a great success as they were able to get subscriptions for the full $500 million offering,” Dr. Gibbons said last night.

”However, in the cold light of day, the community should understand that it’s just more debt and that it will cost $280 million in interest payments over the 10-year life of the bonds.

”In fact, a number of financial observers have noted that the 5.6 percent pricing (at 2.5 percent spread over US 10-year bonds) was at a premium and certainly no bargain to the long suffering Bermudian taxpayer.”

The Finance Ministry last night stated that included in the deal were major investors from Bahrain, Bermuda, Denmark, Germany, Great Britain, Hong Kong, Israel, Italy, Portugal, Saudi Arabia, Singapore, Spain, Switzerland, and the US, among others.

Most of the demand came from institutional accounts, driven by asset/fund managers (66 percent), private banks/retail (12 percent), insurance companies (nine percent), financial institutions (nine percent) and other (four percent).

But there was some frustration expressed yesterday by a one potential local investor who had been frustrated in his attempt to buy the bonds, having read The Royal Gazette’s exclusive story on the offering yesterday morning.

The Bermudian caller said he had contacted HSBC, the agent managing the sale, to find out more.

He said the bank had not been able to tell him the price of the bonds and added that a bank employee had told him that he was “awaiting confirmation that the issue is being offered on a retail level”.

”This is a bond issue for the people of Bermuda,” the caller said. “But nobody at the bank can tell me anything about the bond, never mind the coupon.”

Mr. Scott revealed more about the Government’s pricing strategy for the historic offering.

He said that on Monday this week, the Government took advantage of a positive market window by “whispering” a price range of US Treasury 10-year bill rate plus around 275 basis points (2.75 percentage points), generating a more than $1.5 billion order book by market close in the US.

”Based on this strong early market response, the transaction was left open overnight for Asia, Europe and Bermuda at a revised, tighter price range of 262.5 basis points over US, which generated more than $1 billion in additional demand.

”With an order book approaching $2.5 billion, the Government proceeded to launch and price the deal on Tuesday, July 13, at a revised price of T+250 basis points, the tightest end of guidance,” Mr. Scott added.

Fitch, which yesterday rated the bonds AA+, said in its commentary: “Bermuda’s creditworthiness is underpinned by a high per capita income of over $94,000, low public debt burden and effective management of the business and economic environment. Moreover, Bermuda’s well-established reputation as a domicile of choice for (re) insurance and financial services companies provides a basis for sustainable economic growth.”

But Fitch warned: “Such credit strengths, however, are counterbalanced by the island’s lack of economic diversification and small size, which curbs the capacity to absorb extreme shocks relative to other high-grade sovereigns.

"Policy flexibility is limited by the lack of ‘reserve currency’ status and a lender of last resort to the financial sector, as well as a limited scope to incur and fund large fiscal deficits.”