The local media appears to have a great way of wrongly picking up on what are (and are not) key matters of public interest to be reported upon when it comes to Tynwald - as it has done this week with the reporting of certain Tynwald questions asked by Chris Thomas MHK to Treasury Minister David Ashford in relation to the recent issue of IOM Treasury's thirty year £400,000,000 Sustainability Bond. As a result of this oversight we now know exactly how much it cost us as taxpayers to underwrite this debt instrument on the Guernsey-based minor debt market known as The International Stock Exchange. But not so much about what the £400,000,000 is actually going to be used for - or even whose account the proceeds are now sitting in!
Half the story so far from IOM Newspapers:
So in order to ascertain whether we've all been Goldfingered by Mr Bond or not its probably appropriate for us to do a little re-cap on why Treasury raised the Bond in the first place and what the money is allegedly for - and equally what it isn't (or can't be) for.
So why have we raised Mr Bond now?
Well primarily we'd suggest that .. we're skint.
Like a lot of the Islands retired colonials who came here in the eighties and nineties we're now sat in our big draughty bungalow asset rich and cash poor with the slates lifting above our heads and big bills we can't afford landing on the doormat every month. Especially after the global pandemic has caused Treasury to underwrite COVID-19 support at a cost of circa £10,000,000 a month at a time when Income Tax and VAT receipts are down on top of the budget imbalance we already had in 2019. Not to mention the MUA Debt, the Steam Packet Company Debt, and a disastrous run of frankly laughable over budget big infrastructure projects that have racked up tens of millions of additional unbudgeted expenditure.
We have cash reserves of course but a lot of those are fully invested into world stock markets and one of the most short-term bad decisions we could probably have made would be to liquidate those investments to meet current cash demands when stock market performance has been largely positive since the pandemic hit. So in essence its been determined that its actually cheaper for us to raise new cash through this sort of debt listing than to liquidate investments to raise cash.
So what exactly have we raised and how is Mr Bond structured?
Sustainable Bond Note ref ISIN XS2384582263 was listed by IOM Treasury on the sustainable segment of the Guernsey domiciled [The] International Stock Exchange on the 14th September 2021. This Bond will pay its lucky investors a Coupon (or Interest rate) of some 1.625% per annum which will be paid semi annually until the 14th September 2051. The face value of this Bond was £400,000,000 and IOM Treasury is currently rated Aa3 by Moody's making it a fairly secure bet for institutions looking for a secure long-term return. In fact the issue sold out very quickly such was the demand from big institutions. So with Mr Bond now issued the result is that IOM Treasury will in future be required to issue payments of £6,500,000 annually from its general revenue account to all Bond holders for the next thirty years - a total Coupon schedule of £195,000,000. There will also be the expectation that the Bond will be repaid on redemption (ie, that the investors will be returned their £400,000,000 in September 2051 on top of the Coupon they received) although this sort of debt could likely be restructured to push out repayment.
Now that sounds a lot at £595,000,000 in total to be paid by the taxpayer over thirty years. But the rate of 1.625% is probably a lot less than what IOM Treasury will earn on its existing investment portfolio over the next thirty years - so its undoubtedly cheaper (currently) raising this debt than liquidating already invested capital reserves to raise capital.
As an example the FTSE 100 returned 14.3% in 2021. Which would be 14.3% we would have lost if we had liquidated FTSE 100 investments to return cash to Treasury instead of just borrowing more money.
But what is the money to be used for?
Well at the moment its largely unclear. But reading the newly developed Isle of Man Sustainability Financing Framework produced for IOM Treasury by independent sustainability consultancy Sustainalytics (www.sustainalytics.com) this Framework seems to align with the sustainable criteria required in order to qualify Bonds as Sustainable Bonds under current [The] International Stock Exchange Rules:
Therefore with these controls (or effectively investment restrictions) in place regarding how the money raised can ultimately be allocated, IOM Treasury will have use the proceeds of the Bond solely to finance, or refinance, existing or future projects that allow Isle of Man to deliver environmentally and socially impactful projects in the following twelve key areas laid out in the Framework. Those being:
1. Clean Transportation
2. Renewable Energy
3. Energy Efficiency
4. Environmentally Sustainable Management of Living Natural Resources and Land Use
5. Water/Wastewater Management
6. Climate Change Adaptation
7. Access to Essential Services - Education
8. Access to Essential Services - Healthcare
9. Affordable Housing
10. Employment Generation and Support for SMEs
11. Socio-Economic Advancement and Empowerment
12. Affordable Basic Infrastructure
So we can only conclude at the moment that its largely an infrastructure blank cheque. Which is worrying for an Island that has the most unfit for purpose Government Infrastructure Department known to man.
Given the disastrous infrastructure projects we are already seeing Tynwald rubber stamp and quickly move on from please let us make sure that we don't get royally Goldfingered again here and that our £400,000,000 Mr Bond won't just be used to pursue even more disastrous but 'green' infrastructure projects by civil servants seeking nothing but career vanity. We certainly have good odds already on electric Bus Vannin burning a big hole in the cash, together with big projects to update and insulate IOM schools and health facilities rather than common sense projects like new affordable private or social house building or renewable energy. What is for sure though is that inside government every CEO and Executive Team will already be wearing a big green hi-viz in order to potentially top up their strained post pandemic budgets with cash for a green or sustainable project for anything. The greenwashing risk would therefore seem so be relatively high.
So note to Alf - when you already have a problem with uncontrolled departmental incompetence and mass profligacy what you don't need to do is throw another £400,000,000 at people who have already proved themselves to be thoroughly incompetent time and time again. You have done a fairly sensible, ethical, and well meaning capital raising so far. Please lets not see it just feed the usual fat lazy public sector jowls.
Pictured: Sean Connery in Goldfinger
