investment fund worried about govt’s high debt
A major fund management company is anticipating a sell-off of state entities and is waiting to take advantage of any such opportunity, even as it moves some of its investment outside Barbados.
Assistant vice-president of Royal Fidelity Jillian Nunes made the prediction at an investment forum last night where she and other financial consultants noted that mounting Government debt and an urgent need for restructuring have led to a flight of quality investor capital and speculation that the administration may be forced to sell off corporate assets.
“We believe the present financial climate in Barbados is ideal for privatization of state-owned property and, hopefully, future listings and investment opportunities for the general public,” Nunes said.
“We remain poised to take advantage of these opportunities and encourage others to do the same as they don’t occur very often on our shores. In the period after such an exercise many countries do undergo a rough period of austerity. This is then followed by a period of resumed, and sometimes rapid growth.”
Nunes told a packed Hilton meeting room that the purchase of Government assets was the only short-term venture she foresees in Barbados at this time, pointing to downgrades and rising public debt as deterrents to investment.
“Of great concern to us is the slippery slope our sovereign debt has found itself on,” she said.
Nunes said when Barbados started getting downgrades some years ago, Royal Fidelity – a joint venture company between RBC Royal Bank and Fidelity Bank – had concerns about their investments as ratings continued to slip.
“These have now come to pass. In the last seven years alone Barbados’ rating has shifted down from medium investment grade to junk status. Up to 2012 we managed to maintain investment grade status, indicating that the country had adequate capacity to meet obligations and a relatively low default risk. But more recently Moody’s slashed the island’s rating by three notches from Baa3 to B3, doing so in a mere six months after its initial two-notch downgrade,” she noted.
“These latest actions brought Barbados into non-investment grade territory of higher default probability, higher required coupon rates, and greater vulnerability.”
Pointing out that the successive downgrades are a direct result of the increasing size of the fiscal deficit which exceeded 12 per cent of GDP in the 2013/2014 financial year, increasing Government debt to GDP ratios that are projected above 100 per cent, and the almost tripling of debt service obligations, Nunes added: “All this begs the question, “where do we go from here?” It also highlights some of the difficulties that investment managers face in trying to find suitable returns in the present environment.”
And she said while Government officials had dismissed the Moody’s downgrades, wealth managers across the island were, in fact, worried.
“The decline in the credit rating of Barbados’ Government debt has negatively affected Royal Fidelity’s funds current holdings as a result of its recent performance,” Nunes said.
“As you would no doubt expect, our fixed income focus has now shifted outside of Barbados, along with our equity focus . . . We continue to diversify this fund geographically against any future event.”
Royal Fidelity has been in operation in the Bahamas since 1997 and in Barbados since 2007.