– in the context of the $30 billion syndicated bond
Appearing in the print media during the course of last week were a series of articles in relation to the $30 billion syndicated bond and some other issues relating to the Guyana Sugar Corporation (GuySuCo). In particular, in the September 27, 2018 edition of this newspaper, the GuySuCo Chairman was reported as stating that the entity is “starved for capital”.
Readers might recall that, back in April-May, 2017, a series of articles were featured under this column, dedicated to the economic and social impacts of the Government’s move to downsize the sugar industry. In that series, two articles were dedicated towards critiquing the State White Paper that was presented in the National Assembly by the Agriculture Minister in this regard.
It was recently reported in sections of the media that Republic Bank had halted GuySuCo’s bond financing over misuse of the proceeds from that financial instrument. In response, it was subsequently reported that the top management of GuySuCo claimed to have little or no knowledge of the terms and conditions of that bond instrument. This could be described as undoubtedly a confusing and worrying development.
Key Financial Data FY 2016 FY 2015
Guy$ billions Guy$ billions
Assets
Total non-current assets 117,549 121,940
Total current assets 19,352 18,224
Total Assets 136,901 140,164
Liabilities & Equity
Current liability 44,670 37,713
Non-current liability 70,860 81,921
Total Liability 115,530 119,634
Total Shareholders’ equity 21,371 20,530
Total liabilities and equity 136901 140,164
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Total Revenue 31,903 38,360
Accumulated deficit (40,571) (41,476)
Comprehensive profit/loss after tax: 841 (1,868)
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Key Financial Risk (Leverage) Ratios
*[Net Debt 32,336 35,033]
Net debt to equity ratio 1.51:1 1.70:1
Long-term debt-to-equity ratio 1.67:1 2.27:1
Total debt-to-total-assets ratio 0.56:1 0.52:1
Ratios adjusted to reflect $30 billion [FY2018] Syndicated Bond using balance sheet figures as at 2016, assuming that the changes to date are relatively marginal:
Net debt-to-equity ratio 2.92:1
Long-term debt-to-equity ratio 3.65:1
Total debt-to-total-asset Ratio 0.78:1
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The financial analysis presented in this article focuses exclusively on the financial risks or leverage ratios of GuySuCo – because this is where the fundamental problem lies, coupled with arguably a complex set of other issues. Financial leverage ratios are used to measure how much financial risk a firm has taken on. Typically, a company can finance its assets with either debt or equity – often times a combination of both. Equity finance does not necessarily obligate a company to pay interest and repay principal – dividends are paid at the discretion of the Board of Directors.
There is always some degree of risk inherent in any operating segment of a business, but how a company chooses to finance its operations – the particular mix of debt and equity – may add financial risk in addition to the business risks.
Thus financial risk is the extent to which a firm uses debt financing relative to equity – that constitutes the capital or financing structure of a company.
(This analysis shall be continued next week, with some recommendations for consideration).
