The BU intelligentsia has been following the external debt restructure talks with a keen interest. A press release issued late last week confirmed that a deal was reached by the Government of Barbados and the Barbados External Creditor Committee. A good news story.
Unfortunately the press release does not list the finer details of the agreement. We hope the final agreement is completed without event so that the country can settle down to the enormous task ahead.
Here is the press release.
Barbados Agrees On Terms With External Creditor Committee For Restructuring Of U.S. Dollar-Denominated Commercial Debt
The Government of Barbados (the โGovernmentโ) and the Barbados
External Creditor Committee (the โCommitteeโ) jointly announced today
that they have reached an agreement in principle to exchange certain of
the Governmentโs U.S. dollar-denominated debt for new bonds to be
issued by Barbados. This includes Barbadosโ 7.8% Fixed Rate Bonds due
2019, 7.25% Notes due 2021, 7.00% Notes due 2022, 6.625% Notes due
2035, and Floating Rate Loan with final maturity in 2019 (together, the
โEligible Debtโ).
The agreement in principle follows extensive discussions between the
Committee and the Government. These discussions have included a
number of meetings between senior governmental officials and
representatives from the four core members of the Committee, which
includes Eaton Vance Management, Greylock Capital Management, LLC,
Teachers Advisors, LLC, and Guyana Bank for Trade and Industry
Limited. Two of the meetings were attended by Prime Minister and
Minister of Finance, the Hon. Mia Amor Mottley.
In reaching an agreement with the Government, the Committee
considered information made public by the Government regarding the
countryโs current financial and economic situation. The Committee also
considered the International Monetary Fundโs program and first review of
Barbados.
The agreement in principle includes a reduction of 26.3% in the aggregate
sum of the original principal amount of the debt obligations and past due
and accrued interest as of 1 October 2019.
In addition, the new bonds will have the following key terms:
โข A final maturity of 1 October 2029;
โข Five year grace period on repayments of original principal;
โข A debt management provision through October 2024;
โข Equal semi-annual principal amortisations commencing in April
2025 through the remaining term of the bonds;
โข A fixed annual coupon of 6.500%;
โข A โnatural disaster clauseโ that, subject to certain conditions and
input from holders of the new bonds, will enable the Government
to capitalise interest and defer principal maturities due on the new
bonds for two years in the event that Barbados is adversely affected
by an earthquake, tropical cyclone or rainfall event under its
Caribbean Catastrophe Risk Insurance Facility Segregated
Portfolio Company insurance coverage; and
โข A clause providing for the reinstatement of forgiven principal and
past due and accrued interest upon the occurrence of a payment
event of default prior to the successful completion of the ongoing
International Monetary Fund program.
The amount of past due and accrued interest as of 1 October 2019 that is not to be cancelled will be treated as follows:
โข US$7.5 million to be paid in cash at closing to holders participating
in the exchange (subject to the deduction of the Committeeโs
unreimbursed costs and expenses below);
โข US$32.5 million paid in the form of PDI bonds with a fixed annual
coupon of 6.500%, with an amortization of US$30.0 million in
October 2020, and a final maturity of February 2021; and
โข Balance to be capitalised into the new bonds that will mature in
October 2029.
The Committeeโs unreimbursed costs and expenses incurred in
connection with the negotiation and implementation of the restructuring
transaction (US$3 million) will be deducted from the cash payment made
by the Government at closing in relation to past due and accrued interest,
so that these costs and expenses are borne equally and fairly among all
holders.
It is anticipated that the new bonds due 2029 will be issued with an aggregate face value in excess of US$500 million. These bonds have been
structured with eligibility for J.P. Morgan Emerging Market Bond Index
(EMBI) inclusion in mind.
The Government expects to launch a parallel exchange offer for certain
U.S. dollar-denominated instruments issued under Barbados law in the
coming weeks, effectively completing the comprehensive restructuring of
the countryโs high debt burden, which included the successful closing of
the B$11.9 billion (equivalent to US$5.95 billion) domestic debt
exchange offer in November 2018.
The agreement in principle reached by the parties, and the support of the
members of the Committee for the proposed restructuring, is conditional
on the parties reaching agreement on mutually satisfactory documentation
setting out the detailed terms of the transaction and the new bonds. The
Government and the Committee have agreed to commence work
immediately on, and to work in good faith with their respective advisers
to reach agreement on, mutually acceptable documentation and the
implementation of the proposed transaction. The Government and
Committee members have also agreed to maintain an ongoing dialogue
on economic and financial developments in Barbados following the
conclusion of the proposed transaction which may include a provision of
the new bonds to facilitate bondholder organization and good faith
interaction with Barbados.
The Committee organized in early June 2018 and currently represents
more than half of the Governmentโs Eligible Debt.
The Government plans to launch the invitations to holders in the coming
weeks to participate in the restructuring.
This communication is not an offer or a solicitation of offers to exchange any securities. The invitations are being made solely by the relevant invitation memoranda that will be distributed in due course. The distribution of materials relating to the invitations, and the transactions contemplated by the invitations, may be restricted by law in certain jurisdictions. If materials relating to the invitations come into your possession, you are required by the Government of Barbados to inform yourself of and to observe all of these restrictions. The materials relating to the invitations do not constitute, and may not be used in connection with, an offer or solicitation in any place where such exchange offers or solicitations are not permitted by law. The new bonds have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the โSecurities Actโ), or the securities laws of any other jurisdiction. The new bonds will be offered in the United States only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the United States in compliance with Regulation S under the Securities Act.
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503 responses to “Barbados Government and External Creditors Announce Agreement”
John A
@ Hal
Agree with you fully on the impact assessment, but you and I know we will not get it from government. If they don’t then someone like UWI should do it.
The thing that I was discussing with Walter is the statement left out the critical information which was the value of the bonds rescheduled. It only listed interest rate and maturity dates. If we had the values we could easily calculate the interest cost to the old maturity dates and compare them to the new cost at the 6.5% to the extended dates. Only then will we know the true amount this exercise will cost us now over and above what the old cost would of been, if we had the money to honour the old payments
Let us give them a couple of weeks to fill in the blanks. There is another party, the details cannot be hidden.
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Dullard
Typically when bond issues are described the interest rate quoted is the coupon not any “market rate”
That is why coupon is used the bond price changes all the time with new information.
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John A
@ David.
The details will not come from the other party as they will hold to the principal of confidence which is exercised when it comes to sovereign finance.
We will only hear from our government and as I said before as far as they are concerned the matter is closed.
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Lorenzo
Walter do not waste your time with Hal Austin when it comes to Mr Thompson.Mr Austin beleives Mr Thompson was bright based on a conversation he had with him.When challenged to produce any evidence of such Austin struggles since talking pretty does not qualify.Austin regularly claims that Mr Thompson was not found guilty of wrongdoing with clico and like you i wonder if the policy holders feel likewise since he took up 10 million dollars of taxpayers money to sink into clico, which i am unsure we recovered.Therefore while he was not PM for long his overall record in my view left a lot to be desired when one remembers his promise to reveal all in queen,s park about the so called IMF deal, the St John developement plan etc.
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William Skinner
I hope that the monies earned from the sale of the CLICO will be used to finance entrepreneurial projects for the youth. I donโt see the sense in putting the CLICO financial Centre up for sale when we need government offices.
The taxpayers were hijacked into paying the CLICO policy holders and we need to ensure that they benefit from the bounty.
This money should be almost exclusively pumped into worthwhile community projects.
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Hal Austin
@ John A
As suggested by @ Walter, the press release is incomplete. What I also find interesting is that so far there is no mad rush to buy the bonds, domestically or internationally. Would you buy bonds from a government that defaulted a year ago and has yet to make public its recovery plans?
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John A
@ Dullard
True but the question is how would you now value these bonds anyhow? There is no secondary market to sell them on, no one is going to by them at stated value, our history of default places a major discount value on them even if they were saleable. So my question is this. What would be a true saleable valuation at market value on a secondary market for a bajan $100 million dollar bond if it could be floated?
Walter or Vincent what wunna would pay for such a bond?
Plus don’t either one of you 2 old schemers come back with no foolish offer either! Lol
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John A
@ Hal
Wait you was looking over my shoulder when I was typing to Dullard!
Hal what would to pay for a bond as I outlined above?
Plus I warning you like the other 2 old Vipers don’t come and try and rob me either! Lol
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John A
What I would like us to discuss now is what really is the true market value of such a bond worth. Remember our NIS holding nuff of them so what really at discounted market value in real terms say is a Bajan $100M bond worth?
Come jump in and tell me if I floated this bond on the U.S bond market at 6.5% a handsome rate in deed how much would I need to discount it to get you to open your cheque book?
Let us really give this some thought as we are now looking at real value and not monopoly paper value.
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Mariposa
Don blackman comments on. the agreement
โI find this to be highly invasive and I think that it is part of the deal that requires public discussion and debate. The deal, like the IMFโs, demonstrates how out of touch the policy community is in relation to credit development, global finance and lending to sovereign nations. I am always disappointed that alternatives never appear to be part of any discussion,โ contended Marshall.
He further argued, โThis deal is harpooning us, saying that if we should, for any reason renegotiate default or exit from the current IMF arrangement, all of the favourable terms offered by way of repayment will be removed and you have to face the harsh conditions as originally stated. It complicates Barbadosโ capacity to exercise an exit option should conditionalities in relation to performing under an IMF programme prove to be socially and politically
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Vincent Codrington
@ John A at 8 :48 AM
David Bu knows something that you and I know nothing about. Please give him the benefit of the doubt. He assures us that the information on which a meaningful analysis can be made is imminent.
@ NO
@ Walter
There has never been a local nor international market for GoB paper/bonds. They were traded privately when emergencies for liquidity arose. And these occasions were very few. The value was simply discounted by an interest factor plus broker fees.
Using the coupon rates as John A has done is adequate for purpose. Of course going forward we will see the real impact or absence thereof of the Strategic Default. The latter may or may not be a game changer.
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Hal Austin
@ John A
Ignore the background noise. We live in a world in which most developed economies have base rates of under two per cent, and two major economies are already in negative territory.
In financial terms, businesses with long-term obligations ie pension funds and insurance companies, will normally rush to buy such long-dated bonds; and being marketed by JP Morgan, it is a no brainer.
But these are not normal times and we are dealing with a nation that has defaulted and an economy that has no obvious service or manufacturing sector to lead it out of the doldrum, apart from tourism. That is one reason why we have the good behaviour clauses.
Instead of rushing all over the world giving silly speeches, the prime minister and minister of finance must tell us how she plans to lead the economy out of this mess. No prevarication, no preaching, no hands flaring.
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John A
@ Vincent.
So wait you ain t making me an offer at my newly opened ” Johns One Stop Bond Shop”!
Come stick you neck out here, what would you pay me for a $100M bajan bond at a yield of 6.5% guaranteed by the bajan government? How much would I need to discount it to get you to dust off the cheque book?
Come be my first customer and I will give you a free toaster!
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John A
@ Hal
Lord have mercy with friends like you and Vincent i going hungry today!
Give me a discount factor that will make you bite at a bajan bond at 6.5%. I will better the offer to Vincent and give you a free 60″ Tv instead!
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WURA-War-on-U
If THIS does not tell the ENLIGHTENED something, nothing will..it’s a good thing there are those with actual FUNCTIONING BRAIN CELLS…who will know to avoid all this pretend government idiocy…and WAIT for the chickens to roost…notice i did not say fowls..
” Dr Don Marshall, told Barbados TODAY that while he was still awaiting the finer details of the deal to released, some of the conditionalities made public so far were โinvasiveโ.
Marshall was referring to the clause providing for the reinstatement of forgiven principal and past due and accrued interest if Government defaults on payment before the successful completion of the ongoing International Monetary Fund (IMF) programme. He contends that this essentially removes Governmentโs ability to renegotiate terms with the IMF, should for example, the determination be made that the social ramifications were too onerous.
โI find this to be highly invasive and I think that it is part of the deal that requires public discussion and debate. The deal, like the IMFโs, demonstrates how out of touch the policy community is in relation to credit development, global finance and lending to sovereign nations. I am always disappointed that alternatives never appear to be part of any discussion,โ contended Marshall.”
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Vincent Codrington
@ John A
There are advantages to being an old viper. First, he never loses his temper when frustrated by “whoring old tricks”. Secondly, he always gives the opponent enough rope to hang himself.
Be guided accordingly.
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walter Blackman
Dullard
October 22, 2019 8:52 AM
“Typically when bond issues are described the interest rate quoted is the coupon not any โmarket rateโ
That is why coupon is used the bond price changes all the time with new information.”
Dullard,
I made a big “boo boo” earlier in my response to NorthernObserver which could have caused a great deal of confusion. So let me take a minute and try to clarify.
For us to get a clear understanding of bonds and the true value of this new debt arrangement to Barbados, we have to get information on face values, market rates, coupon rates, and maturity dates for all of the bonds. From that information, we can calculate bond prices.
We were given coupon rates for the old and new bond issues (my bad) and maturity dates, but no information on face values or market rates. We do not know if the coupons on the “old” bonds were annual or semiannual. I tried to introduce bond prices and market rates into the discussion.
Why is the market interest rate important?
If the market interest rate used to value these bonds is lesser than the coupon rate, then the market price of the bond will be greater than its face value. The higher the market price, the more valuable the bond, and theoretically speaking, the more money government can collect for the bond.
Of course, the opposite is true if the market interest rate used to value these bonds is greater than the coupon rate.
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Vincent Codrington
@ John A at 9:44 AM
Please close your One Door Bond Shoppe. Do you not notice that Barbados has gone upmarket in this Digital World? Even BSE struggling to justify its existence.
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Mariposa
Don Marshall is on point
The fact that govt would agree to a ironclad agreement that does not take into account the realities of a global economic melt down and its negative impact on small island nations speaks volumes on the manner if ways these one armed bandits can tie these islands up in knots and simply does not care about the aftermath.
But govt out of desperation agrees
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John A
@ Vincent.
I been at my ” trading desk” under the mango tree from 8Am and the blasted phone ain’t ring once so far!
If it continue so I going have to start offering my Nigerian Bonds which offering a 18% rate of interest and guaranteed by some man in Nigeria with a funny sounding long name!
Failing that I taking down my shingle this evening, closing the business and limiting my losses on this dam venture.
Wunna men would not support a small man at all at all at all! ๐
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Vincent Codrington
The person that advise one to buy a big guts horse does not help one to feed it. A word to the wise is enough.
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Hal Austin
It is nice to see that Don Marshall has entered the debate. If the government fails to produce a post-agreement economic assessment, can he promise that he and his colleagues will?
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Dullard
Great discussion all!
So how do we price a bond issue from a micro economy that is in default?
As a first cut I would check the historical prices of similar sized issues from municipalities, states and provincial governments globally who were at or near default.
Then I would filter on the characteristics of the issuing entity to see how similar iit is to Bim eg size of popn, financial structure, ability to raise taxes etc. I’d select those. Take the median. This would be my starting point. Then
tack on various risk premia especially the Persaud premium to account for the reverse midas touch.
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Miller
@ Mariposa October 22, 2019 10:26 AM
โDon Marshall is on point..โ
+++++++++++++++++++++++++++++++++++++++++++
Where was this other “Don” when the David Estwick debt restructuring plan was being debated?
Why didnโt he act as the intelligent paramour for a go between the raging pitbull and the dodgy Stinkliar looking for a cut with poor Fumble the political clown and financial fool acting like piggy-in-the-middle?
What are the differences between Estwick UAEโs bailout proposal and the powerfully persuasive Persaudโs poker game with him taking his cut in true Medici style?
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John A
@ Miller.
Persaud was whipped at the poker table and had to fold taking with him a bill for all the unpaid amounts and interest not paid in the last 18 months!
I know in table tennis we used to call it a ‘sow’ when you get beat so bad, but not sure of the term in poker.
Anyhow if it gives you comfort remember Persauds last famous words as he stood on the deck of the SS Restructure.
” the foreign debt is not an issue as we there is no need to rush to pay them as we don’t plan to borrow from them soon again anyhow”. Well the foreign creditors cut you ass good for them comments didn’t they!
I always hear cockroach ain t got no right at fowl cock dance!
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John A
@ Dullard
Based on that summary what would you pay Johns Bond Shop for a $100M bond at 6.5% under our current conditions?
This is what it boils down to in real terms if you want to value say the amount of paper the NIS is holding.
As it’s you in I will not charge any commission on my first sale ( 12 midday and I ain t sell one dam thing yet) Stupes.
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Dullard
@ John A
You ain’t getting no numba from me. Lol
But as thought excercise, discount the PV of coupons and principal at what the Argentina bonds were trading at recently when they ran back to the Imf. Or something even higher.
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John A
@ Dullard
What! No I planning a hotel corridor from hither to thither and I got nuff investment in the pipeline! Surely all these grand ideas got to make my bonds worth more??
I can hear Vincent now ” a promise is comfort to a fool”
Lord my shop door look like it going get close after just 1 day ๐
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Walter Blackman
John A
October 22, 2019 9:12 AM
“Walter or Vincent what wunna would pay for such a bond?
Plus donโt either one of you 2 old schemers come back with no foolish offer either! Lol”
John A,
Historically, whenever there were sweet deals floating around, the Government of Barbados always made sure that all Barbadians were the first to be invited to participate and feast (why do I suddenly hear “teacher said if you tell a lie, you going to hell as soon as you die”?).
If these government bonds are sweet deals, then I am willing to take a pass. I would pay zero for them. The risk is far greater than the reward.
There is a more powerful and understandable reason why I would not buy.
As Piece uh de cock said, I am penniless.
However, I have a small piece of land in the country, and a tractor with a plough . Cannabis is retailing in Barbados at $5,000 per pound and we are consuming thousands of pounds by the hour. We can no longer afford to use up valuable foreign exchange (you remember the hundreds of millions of dollars of foreign exchange the central bank said went “up in smoke” and could not be traced?) to import relatively inferior cannabis from Arizona, Canada, St. Vincent, or Jamaica, so we have to plant and sell our own.
Import substitution is the name of the concept.
Research has shown that “coral cannabis”, grown only in Barbados, is the best in the world.
I know for sure that the Barbados Government is going to invite all Barbadians shortly to participate in the cultivation of medicinal marijuana. I want to be ready and prepared when the government calls upon me to perform national duty.
Therefore, I am going in for my tractor license on Friday morning. I have been told that I could put $300 in an envelope and leave it “under the mat” of the tractor if I want to be real sure of passing the test. I am not going to do that. I have enough tractor driving skills to pass any test. Truth be told, I can even lift the front wheels of the tractor into the air and drive on the back wheels only.
Just thinking of becoming rich from cultivating medicinal marijuana relieves me of depression, anxiety, and stress.
I want you to view me as a “new schemer” coming back to you with a wise offer.
LOL.
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John2
If at the end of the day persaud got beat at the table is is Bajan that got to suffer more , not him, he will still draw his money
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Walter Blackman
Dullard
October 22, 2019 11:45 AM
“Great discussion all!
So how do we price a bond issue from a micro economy that is in default?
As a first cut I would check the …โฆ… ability to raise taxes..”
Dullard,
And then I would stop right there. Taxing ability already maxed out.
LOL
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John2
A self proclaimed statesman rejoicing at what he think is a failure by the state
The same one who laughed at the natural dis aster clause which is now accepted by said creditors
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John2
We all donโt alway get everything right or what we want
Deal done
Congrats to gov
Move on to next problem to solve gov
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John A
@ Walter.
JOHNS BOND SHOP HAS NOW CLOSED DUE TO LACK OF DEMAND!
Walter seriously now after a few laughs this 26% discount on liability has now opened a can of worms, for example I will focus on just one concern.
What will the next actuarial report value the paper held at the NIS for? Traditionally that paper was valued at offer price. Now we have a 26% devaluation of government paper so what is the pension paper now worth?
Should the NIS continue to value assets at purchase price or must we now revalue the assets of the NIS based on achievable market value only?
It takes us back to.my original question that nobody wants to touch and that is what is the true market value now of $100M bajan bond at 6.5% and how does one holding these bonds now fix a valuation to them?
We need to now start looking at the fallout from what has occurred and see what effect it will have on the bigger picture in Bim.
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John A
@ Walter.
Remember even after the local haircut we still have the portfolio managed by Oppenheimer to worry about. How much foreign government paper was Oppenheimer ” encouraged” to purchase by Sinkler would be a good place to start.
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WURA-WAR-on-U
“And then I would stop right there. Taxing ability already maxed out.
We have seen SDs before and the countries did not sink to the core of the earth. If we agree the press release is lacking pertinent information to inform a reasonable conclusion what are you saying? The bottomline in case you have forgotten is that the country was faced with significant foreign payments in a short period and given our peg had to make quick decisions to safeguard the monetary arrangement both major parties have wedded themselves. Need not remind you the slope of the foreign reserves trendline. If we didnรขยยt default given our junk status what were the options? An academic exercise now, one we have floged to death.
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Mariposa
Miller
Don spoke on the agreement govt delivered to the media
Estwick offer was a suggestion that never saw the light of day
Nothing there to speak of
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John A
@ David.
If the kitchen getting hot for you open a window.
The next chapter is the effect on things like the NIS etc. These issues and the Oppenheimer portfolio are too important to all of us when it comes to the future of the NIS to try and sweep under the rug.
Tell the politicians that might be pressuring you to close the duscussion that the questions now starting !
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Dullard
What will the next actuarial report value the paper held at the NIS for? Traditionally that paper was valued at offer price. Now we have a 26% devaluation of government paper so what is the pension paper now worth
And to think that before all this the NIS was practically insolvent.
What is the financial state now?
It will be a grim time for future pensioners.
You are in discussion with a hardened blogmaster forged in the crucible of debate for 12 years. No pain no gain. You forget where you were firmly lodged pre-May 2018. The question asked remains on the table. Bear in mind we all have different risk appetites. Again no media outlet has highlighted the NIS disaster waiting to happen than BU. Even Mia has delayed comment. For years we voted for two parties happen to use the NIS as an ATM not to mention appointed incompetent Chairpeople.
We are reaping what we have condoned for too long.
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Piece the Legend
@ the Honourable Blogmaster
At 1.12 pm you said to John A and de ole man quotes
“…You forget where you were firmly lodged pre-May 2018…”
What you mean by dat?
I is not going no further Sir cause we get told…
Heheheheh heheheheh
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WURA-WAR-on-U
“It will be a grim time for future pensioners.”
wuh they tief all the pensioner’s money, them and their scam artist minoirty briber friends…
stolen pensioner’s money FUNNELLED TO:
the 4 season’s blight
the Ape’s Hill scam
the golf course scam
any scam that caught their fancy..
they all know where the stolen pensioner’s money is at and who got it…
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Hal Austin
@ John A
In July 2010, in my then column in the Nation, I warned that Barbados was running a huge risk with the NIS and suggested that the triennial actuarial reports were not enough of a risk analysis. It was a basic truth.
But the NIS rolled out a Mr Derek Lowe, the then marketing/research officer, to repudiate my arguments. It failed. In fact, the NIS is still late with its triennial reports and was late when it published its last report.
Since then Oppenheimer gave a big public presentation at the Frank Collymore hall, notable for the presenter talking about how much ice cream his father in law liked.
He told us about the returns he was making on the investments, but nothing about his stock picking, asset allocation nor investment risk; but he was making a 6 per cent return. It was clear it was high risk.
The presentation was attended by the minister and chairman. Both seemed happy with the way the fund was managed. Nothing has changed.
We still want to know about the asset allocation policy, how stock picking is decided, and who does the research and how it is done. ignorance is bliss.
Who was it who mentioned Plato’s Allegory?
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Lorenzo
David BU you have confirmed what i have said before this guy John A seems to be a Dem with an agenda. Here he is trying to browbeat government about details from an agreement reached last friday.Who the hell is he or who elected him as their representative?Then he goes on to all kind of wild speculation without the knowledge of what has taken place,pathetic.
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Walter Blackman
David
October 22, 2019 1:12 PM
“For years we voted for two parties happen to use the NIS as an ATM not to mention appointed incompetent Chairpeople.”
David,
You might have to identify these incompetent chairpeople who were appointed at the NIS, one by one.
The UWI is telling you, via today’s nation newspaper, that certainly you cannot mean Dr. Justin Robinson. He has been honoured by that institution for his service and contribution to the Barbadian public.
No one has honoured Jepter Ince, so maybe he is fair game.
LOL
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Walter Blackman
John A
October 22, 2019 12:44 PM
“@ Walter.
Walter seriously now after a few laughs this 26% discount on liability has now opened a can of worms, for example I will focus on just one concern.
What will the next actuarial report value the paper held at the NIS for? Traditionally that paper was valued at offer price. Now we have a 26% devaluation of government paper so what is the pension paper now worth?”
John A,
Is the NIS fund caught up in the definition of “eligible debt” we are discussing?
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