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No Loan From Cohen & Company

Premier Bush.

Good evening fellow Caymanians and residents in these Islands. I wish to inform you of some important matters that relate to the financial affairs of the Government. On 25th October 2010 it was publicly announced that a decision had been reached to engage Cohen & Company Capital Markets LLC to arrange the funding of Government's long-term financing requirements of 185 million US Dollars, for Government's financial year that will end on 30th June 2011.

The decision to engage Cohen & Company was made for two main reasons:

  1. The terms of its offer afforded Government an opportunity to minimise costs and save millions of dollars on the interest; and
  2. It was the only bidder that categorically stated it would be willing to secure financing for Cayman Airways - none of the other bidders were so positive and supportive of our National Airline.

Let me elaborate on the first of these two reasons. Government considers financing cost minimisation to be very important because the debt burden costs of Government are far too high. In respect of the current fiscal year that will end on 30th June 2011, Government expects that interest payments on its debt and other financing costs will be approximately 31 million Dollars. Government is therefore quite right to concentrate on financing-cost minimisation.

On the basis of representations made to Government, the acceptance of the offer from Cohen & Company was calculated to have been approximately 24 million US Dollars less than the offer recommended to Government via the Central Tenders Committee process. Sensibly, and with the country's benefit in mind, Government chose the lower cost offer, to try and save 24 million dollars. Key amongst the representations made to Government was that a 4.5% Interest Rate Cap could be obtained, at a certain price, so that the rate of interest that Government would pay on its current year borrowing would never exceed 4.5%.

Government has now been advised that the 4.5% Interest Rate Cap cannot be obtained at the price previously represented to Government. The increase in the price of the Interest Rate Cap is of such magnitude that it would wipe-out the cost-minimisation advantage that had been agreed. Government has therefore made the prudent decision, effective 27th January 2011, to terminate its previously-announced award.

The Government has always acted, and always will act, in the country's best interests!

Particularly, in the January to March quarter of the Government's financial year, cash inflows are strong. Nonetheless, Government plans to obtain external financing before its 30th June 2011 year-end, as needed. As further evidence of the Government acting in the country's best interests, let me provide you with succinct information about the Government's results for the half-year that ended on 31st December 2010.

The main highlights of the results for the half-year ended 31st December 2010 are as follows:

  • total operating revenues were 267 million dollars. This result was approximately 12 million dollars better than budget expectations of 255 million dollars for the half-year;
  • operating expenses were 236 million dollars - which were 17 million dollars less than budget expectations of 253 million dollars;
  • financing expenses for the half-year were 14 million dollars - which were approximately 2 million dollars less than the budget expectation of 16 million dollars;
  • accordingly, Central Government itself had an unaudited surplus for the half-year of 17 million dollars which was significantly better than the expected deficit for the half-year of 14 million dollars;
  • the net result of all Statutory Authorities and Government Companies performance was a small surplus of one (1) million dollars whereas the budget expectation for their performance was a deficit of 800 thousand for the half-year; and
  • overall, the entire public sector reported a surplus for the half-year to 31st December 2010 of 18 million dollars versus a budget expectation of a deficit of 15 million dollars: an improvement of 33 million dollars.

The solid performance of the Government and the rest of the public sector in the first six (6) months may not necessarily continue at the same rate in the last six months of the financial year. These very encouraging results did not happen by chance: the expenditure results being lower than budget expectations are a direct result of a conscious effort being taken across the Government and supported by the wider public sector to restrain expenditures without jeopardising the quantity or quality of services offered to the public. Such efforts have the support of the Government, and on behalf of the Government, I wish to congratulate the public service for its efforts and to encourage the continuation of those efforts in the last six months of this budget year.

The Legislative Assembly has empowered the Government to borrow up to 155 million Cayman Islands Dollars or 185 million US Dollars in its financial year that will end on 30th June 2011. The encouraging performance in the first six months of the year will cause the Government to assess whether it needs to utilise its full borrowing empowerment.

The assessment arises from the Government's philosophy of minimising borrowing in order to act in the best interest of the country, at all times. I will conclude by stating once again, it is acting in the best interest of our beloved Cayman Islands that has led the Government to:

  • terminate its previously-announced financing award decision;
  • do an assessment as to whether Government needs to borrow the full entitlement, in US Dollars, that is equivalent to 155 million Cayman Islands Dollars; and
  • achieved an encouraging set of operating results for the first six months of its current financial year and we will carry on this trend for the remainder of the financial year.

May God continue to bless our Cayman Islands. Thank you.

For further information contact: Susan Watler