The government of Suriname intends to issue a first time ever sovereign bond for approximately US$ 500 million to raise funds for the financing of its equity share in planned joint ventures with two North American mining companies.

The joint ventures will be business undertakings in the exploration and mining of gold. Draft agreements for these (referred to as the ‘gold agreements’) are currently being discussed in the Surinamese Parliament. With the bond issuance the government is also looking to raise funds for the State Oil company, Staatsolie N.V., which is embarking on a large-scale capital investment program.

After an initial review, the government has decided it favors issuing new government debt in international and local markets to finance the project rather than through other options. Government’s considerations include the following:

• Borrowing costs for similarly-rated emerging market governments in international markets are currently at or near all-time lows;
• Prudent macroeconomic policies and the stabilization of the exchange rate have led to upgrades from all three major credit rating agencies, resulting in four upgrades in the recent two years. This is believed to also push borrowing costs for Suriname downwards;
• Both companies have drafted the agreements to effectively prevent the government from directly selling its equity. Thus investors would be assured the bond would remain backed by proceeds from gold exploration and mining;
• Raising money via these companies is believed to be available however quite expensive and possibly compromising the government’s ability to act as an independent shareholder;
• Funding the investments via reserves could seriously harm the international rating of the country and compromise the stability of the exchange rate by depleting reserve coverage of imports; and
• This would undermine the relationship between the Central Bank and the Government.

The government has already put out a Request for Proposal (RfP) to the leading international investment banks in the field. It intends to select a bank based on its reputation, relevant experience, transparency assurances that it can provide, and costs. The Government will also hire an independent international law firm to assist in the process. The process of selection of the financial and legal advisors will be kept transparent to the full, which subsequently also offers confidence to investors.

Once the draft gold agreements are approved by Parliament, the government together with the advisory companies would start preparing the “bond offering memorandum” or prospectus. This prospectus would provide detailed disclosure of the country, including key risks, political and social background, and a balanced overview of economic and financial prospects. It will be accompanied by marketing material that will be used to position the country to raise money, as well as the required documents on the applicable regulation in the country.

The international mining companies are committed to a technical and environmental feasibility study in connection to closing the deal. These studies would also be taken up to the Parliament and the committees for discussion. In this way, the government is trying to involve various stakeholders in the process of discussing options and choosing what is best for the country.

When all this is complete, a “road show” will be launched during which top economic officials will lead meetings with key interested institutional investors in the US, Europe, and potentially the Caribbean.