As we approach the stipulated deadline for acceptance of the Government of Trinidad and Tobago Zero Coupon Bonds (GOTT ZCB) by CLICO policyholders, Bourse would like to take this opportunity to provide you with a review and update of developments over the last few months.

Allocations and Transfers Update

Just over six months have elapsed since the Colonial Life Insurance Company (CLICO) processing centres were opened to policyholders wishing to accept the government's offer to exchange CLICO policies for GOTT ZCB. June 30 marks the ultimate deadline for the applications of holders of CLICO and British American Trinidad (BAT) short term investment products (STIPS) with principal balance of TT$75,000 and over to accept the Government's offer to exchange CLICO policies for GOTT ZCB. Holders of Colonial Life Core Fund Series 6 (CSI 6) have until September 30, 2012 to accept the Government's offer. For those STIP policyholders who have not yet accepted the offer, the opportunity still exists to accept within the next two weeks. Core Fund Series holders, can still accept the offer in the upcoming three months.

With just two more weeks left for the offer, policyholders, bondholders and the public alike may be interested in knowing the status of the payments thus far. Based on official data, unofficial data and our own calculations, we have compiled a report on the progress of the payouts. Please be advised that the figures we present are estimates based on feedback received.

Central Bank indicates that as at June 8, 2012 12,700 allocation letters with an aggregate value of $6.95 billion of 1-20 year Zero Coupon Bond were issued to bond holders. This represents approximately 66.2 per cent of the proposed $10.5 billion payoff.

In terms of secondary trading, within the 1-10 year range, $2.8 billion (roughly 53 per cent of the 1-10 year bonds) was traded on the secondary market. It should be noted these figures do not account for "double counting" arising from the inclusion of subsequent third party trades. These 1-10 year bonds were traded as 1-10 year or 1-5 year blocks.

From what we have seen thus far, there has been virtually no trading of the individual years of bonds with maturities in the 11-20 year range. The majority of the bondholders who received their allotment letters opted to hold on to their bonds. Based on our calculations, approximately 39.52 per cent ($4.15 billion) of the total $10.5 billion or 59.7 per cent of the $6.95 billion allocated GOTT ZCB is currently held by bondholders. See Exhibit 1.

Market Conditions

In our latest unofficial poll of the market, we have found the pricing offered for the 1-10 year bonds is becoming more competitive. Unofficial data indicate the pricing being offered to bondholders from the various financial institutions range from 83 cents and upwards. However, the pricing is dependent on the aggregate value of bonds traded.

The higher prices of the 1-10 year bonds had implications on the local interest rate environment, as short and medium term interest rates were subjected to further downward pressures. This is reflected in the TT$ Yield Curve derived by Bourse. As Exhibit 2 illustrates, over the past 5 months, higher prices of the 1-10 year bonds led to the downward shift of the TT$ yield curve. With higher pricing being offered to bondholders, the TT$ yield curve within the medium term is expected to continue to experience downward pressure. See Exhibit 2.

CLICO Investment Trust

(NEL 2 Update)

The Minister of Finance had indicated the CLICO Investment Trust (NEL 2) would be instituted by the end of June, however, at the second quarter draws to an end without any new updates on the progress of NEL 2, a timeline of the fiscal year-end seems more realistic.

Upon finalisation of the legal and other documentation necessary for the establishment of the NEL 2, bondholders would need to set up a stockbroking accounts in order to deposit their NEL 2 shares for trading on the local stock exchange, given that the NEL 2's are to be valued at $5.25 billion and backed by 51.9 million Republic Bank Shares and other assets. Currently, the 51.9 million RBL shares are valued at approximately $5.035 billion (Based on RBL's current share price of $97.01 as at June 14). Exhibit 3 illustrates the process holders of 11-20 year bonds will need to undergo to exchange their bonds for the NEL 2 shares.

Legal Action

In recent developments with regard to the United Policyholders Group, Ramesh Lawrence Maharaj SC is requesting the Government to withdraw its June 30 deadline based on the following:

i. On April 19 the High Court granted the United Policyholders Group leave to apply for judicial review against the Prime Minister and members of Cabinet on the grounds of illegality, unequal treatment, violation of their legitimate expectations and that the offer was unreasonable and irrational. The full hearing of the judicial review is fixed in the High Court of Port of Spain for November 21 and 22, 2012.

ii. He also stated the Government is refusing to provide policyholders with relevant information regarding CLICO in order for them to properly assess whether the offer is valued at what the Government said.

No response from Government has been made with regards to the call for extension of the deadline for acceptance of STIPS.

In addition, on March 29, the High Court ruled that the five CLICO policyholders who brought legal action against the State for unpaid premiums were not entitled to pre-emptive legal costs. The Group was seeking to recover investments in CLICO which were being propped up by the Government and Central Bank. The Group's application asked to be paid out of the Statutory Fund to pursue their litigation further.

In conclusion, a lot of uncertainty still looms as no conclusive dates have been provided for either NEL 2 or the public trading of bonds. The deadline date for acceptance of June 30, 2012 remains effective and United Policyholders Group judicial review in November remains wildcards. What we do know for certain is the yield curve has been suppressed and more than 60 per cent of the value of GOTT ZCB has been accepted. As more information comes to light Bourse will continue to provide investors with the necessary updates to facilitate informed decision making.