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GDB Rakes In $250 Million In Short-Term Deposits

Faria said bank has issued $26.5 billion in bonds in past four years


December 2, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

Outgoing Government Development Bank (GDB) President Antonio Faria’s efforts to get commercial banks to make short-term deposits in the GDB has paid off, netting $250 million in the past two months.

Faria said that since mandatory deposits by Internal Revenue Code Section 936 companies ended, commercial banking institutions’ deposits with the government’s central bank have dwindled. His goal has been to achieve $1 billion annually in these short-term deposits (of 30, 60, or 90 days), which are used to issue lines of credit or loans to government agencies for the same period of the deposits.

"I have other sources of funding to give these lines of credit, which are requested all the time by agencies such as the Puerto Rico Electric Power Authority [Prepa]," said Faria. "What I want is to increase GDB sources of funding."

Faria said it is natural for banks that are always doing business with the GDB to deposit their money there before using it to make loans or investments. The GDB pays the banks market rates, but the funds are tax-exempt for the period they are being used.

Faria wants to market the GDB to all government agencies, most of which do their financing in-house, so they can take advantage of the bank’s expertise and connections, saving them millions of dollars. "My idea is not to compete with commercial banks but to be a facilitator," he said.

Four banner years

Faria said the GDB has set records in several areas during the past four years. "Municipal governments have had $500 million in debt with the GDB and an additional $1.4 billion in bond issues during the past four years," he said. According to Faria, this money accounts for the unprecedented public-works program undertaken by all municipalities.

The GDB issued a record $26.5 billion in bonds during this same period, of which $17.1 billion was new money. Refinancing $9.4 billion meant savings of $1.1 billion to the government of Puerto Rico. In addition to lower interest rates, the government agencies have benefited from improved credit ratings.

Faria said Prepa’s rating was raised from BaaI to A3. The Ports Authority, which hadn’t been able to market its bonds for a decade, achieved an investment-grade rating. Standard & Poor’s reclassified the Tax & Revenue Anticipation Notes from SP I to SP I+. The Public Finance Corp., a GDB subsidiary, also got a lift, from Baa III to Baa II.

"We implemented an open-book policy with credit-rating agencies, which is fundamental to gain their trust, and as a result have an excellent relationship with them," said Faria.

Early next year, Faria’s successor will have to deal with two major bond issues: $190 million for the Jose Miguel Agrelot Coliseum and about $415 million for the forthcoming convention center. Faria said these sums have been provided as lines of credit to finance the projects’ construction. The bond money will be used to pay off the GDB, allowing it to remain in the black and continue financing other public works.

This Caribbean Business article appears courtesy of Casiano Communications.
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