Ministry of Finance Announces Exchange Control Adjustments

January 13, 2006

In keeping with a commitment to review existing arrangements, towards achieving a gradual yet meaningful liberalization of Exchange Controls, the Government wishes to inform the public of several further adjustments in the Exchange Control regime administered by the Central Bank. 

Unlike earlier initiatives, these new measures focus almost exclusively on the relaxation of certain capital account restrictions, with the specific objectives of providing enhanced opportunities for residents to participate in and finance investments overseas and at the same time address several of the recommendations in the Bahamas Stock Exchange Committee’s Report to the Government on measures to deepen domestic capital markets.

Investment Currency Market Rate

1.      With immediate effect, the current bid and offer investment currency market rates, applicable to residents making overseas investments are halved to 12.5% and 10%, respectively. However, existing investors, should they desire, will be allowed up to 31^st March 2006 to liquidate their original capital investments at the old offer rate of 20%.

Real Estate Investments—Time Shares

2.      In the area of real estate investments, residents may now invest up to $25,000 per family unit, once every ten years at the official rate to purchase time shares abroad.  This will accommodate the growing interest of Bahamians in this area and codify certain observed practices as regards the financing of time shares.  All other real estate purchases will continue to attract the ICM rates.

Employee Stock Option/Share Purchase Plans (ESOPs/ESPPs)

3.      To allow Bahamian employees of foreign owned institutions in The Bahamas to take further advantage of opportunities arising from their employment, the investment limit in contributory employee stock option/share purchase plans is increased from $10,000 per year to $25,000—through the official market.

Emigration

4.      Provision has also been made to facilitate the changing requirements observed over time for emigration.  Bahamians taking up permanent residency abroad may now transfer out the foreign currency equivalent of $250,000 per annum, at the official rate—which is an increase over the previous $125,000 limit.

Resident Investments in Publicly Traded Foreign Securities Listed on BISX as BDRs

5.      As noted earlier, this round of liberalization provides several measures aimed at affording residents the opportunity to participate to a greater extent in overseas investment opportunities and at the same time provide support to domestic capital markets. 

One of these is the provision for a defined amount of BDRs to be financed from the official reserves.

1. Specifically, local broker dealers will be allowed to structure BDRs, financing the underlying foreign securities at the official rate, to the extent of 5% of the external reserves at the previous years’ end but not to exceed $25.0 million.  This will allow resident investors, including individuals, pension funds, and institutions, the ability to buy in Bahamian dollars, stocks traded on overseas exchanges.
2. The Bank will be issuing a separate communication on the operational framework of this arrangement.

Broadening of Eligible List of Investors in Domestic Securities

6.      In another effort to promote domestic capital markets, and recognizing the important nexus this group has with the domestic economy, the list of eligible investors in domestic securities has been expanded to include Temporary Residents, Permanent Resident (with restricted right to work), and certain entities designated resident for Exchange Control purposes.

1. More specifically, Temporary Residents and Permanent Residents (with restricted right to work) may now:           

                                                               i.      invest in obligations of companies listed on BISX up to an aggregate total of 10% of the issue/offering and

                                                             ii.      invest in public sector securities, for which the Central Bank acts as Registrar, subject to an overall limit of $100,000 per person/entity.

2. Further, companies designated resident for EC purposes, with no term restrictions on their domestic operations, and that in the normal course of their business activities invest in securities (i.e., insurance companies and other financial service providers (brokerage houses) are now permitted to invest in equities of companies listed on BISX, up to a limit of 10% of the issue/offering, per investing entity and in other private and public sector securities, without limit.
3. All investments are expected to be funded from Bahamian Dollar resources.

Regional Cross Border Listings

7.      Regional Cross Border Listing has been identified as an important avenue for deepening economic relationships with Caricom, providing Bahamian companies with an opportunity to embrace foreign capital markets and affording Bahamian investors with additional opportunities to diversify investment activities and to hold foreign assets.

Consistent with these objectives,

1. Bahamian companies listed on BISX may now list equity securities on principal Caricom exchanges (i.e. Barbados, Jamaica, ECU and Trinidad & Tobago), subject to a limit of 10% of issued and outstanding voting share capital, up to a maximum of $20 million per annum.
2. Also, foreign companies listed on principal Caricom exchanges may now list issued and outstanding equity securities on BISX so that the at cost value of net capital (purchases less sales) invested by Bahamians does not exceed $5.0 million per quarter and a maximum of $20 million per annum.
3. BISX is presently establishing the operational mechanisms and policies to govern cross listing and trading within these parameters, and expects to be completed within the year.

Outward Investments by NIB

8.      Another ground breaking element of these new arrangements is the accommodation given to the diversification needs of the National Insurance Board.

9.      NIB has been granted a maximum of $25 million annually for foreign investments, at the official rate of exchange. Modalities have already been structured by the Bank in conjunction with NIB officials.

Credit Facilities for Temporary Residents

10.  Lastly, to more realistically reflect changes in cost structures overtime, Temporary Residents may now borrow up to $50,000 for consumer loans, up from $15,000.  Further, Temporary Residents who have resided and worked in The Bahamas for at least 3 years, may borrow up to B$200,000 to finance owner occupied dwellings—obviating the need a for case by case consideration of requests.

Ministry of Finance

9 January 2006