Bonds instead of money. The government came up with a clever idea
Bonds worth as much as PLN 6.1 billion were transferred by the Ministry of Finance to various state institutions on Friday, December 30, 2022. Polish Nuclear Power Plants received the most – PLN 3 billion 984 million. The Government Housing Development Fund received PLN 900 million in debt securities, PLN 479 million to universities, PLN 375 million to the National Health Fund, PLN 200 million to the Medical Research Agency, and PLN 180 million to the Companies Development Fund.
In August 2022, the latter received a negative opinion from the Supreme Audit Office, which showed that the involvement of PLN 300 million in the restructuring of Gryfia Shipyard did not bring financial improvement to the company, which is still loss-making. As you can see, this is not the end of the state shipbuilding investment, because there are new funds to transfer.
Polish Nuclear Power Plants are estimated to need PLN 100 billion for construction of a nuclear power plant to a company with the American Westinghouse, so the less than PLN 4 billion is just a prelude for now. The Government Housing Development Fund subsidizes municipalities in the construction of apartments for rent, and the Medical Research Agency subsidizes drug research.
Bonds instead of money
The only question is why these institutions got bonds and not money? It is clearly more convenient for the government. He would have to find a buyer for the bonds, and then transfer the money obtained to the target entities. And in this way, these entities get bonds and have to organize the money themselves, e.g. by taking a loan against them. Financing costs will be shown in their financial statements. And the government can show bonds being sold at par.
At auctions, the Ministry of Finance usually gets a price much lower than the face value. For example, floating-rate bonds WZ1127 transferred to PEJ in the nominal value of PLN 1.2 billion, at the end of November the Ministry of Finance sold 94.82 percent their pricesin other words, under the same conditions, instead of PLN 1.2 billion, PEJ would formally receive PLN 1.13 billion if the acquired funds were sold first and then transferred.
See also: There is a new offer of government bonds for January 2023. This is how much they will earn
In the case of PLN 1.2 billion of bonds with a fixed interest rate of 3.75 percent, transferred to PEJ. PS0527 sale price was at the October auction 81.5 percent denominationwhich means that formally, instead of PLN 1.2 billion, only PLN 974 million would go to PEJ if these bonds went through the tender procedure.
Finally, for bonds DS0432 with a fixed rate of 1.75 percent. In November, the Ministry of Finance received a price of only 65.5 percent, i.e PLN 797 million transferred in this form to PEJ is worth PLN 522 million in real terms.
As you can see, the six billion formally invested by the state is currently worth much less in real terms, although with the redemption of bonds between 2024 and 2032, it will be the same six billion in nominal terms. However, companies will now have to organize their own current cash flow, and bonds can be used as collateral for loans.
In fact, nothing stands in the way of using this method – bonds instead of cash – for, for example, a 500+ payout. Well, but for the moment there are no indications, no information from the government that there is such a possibility at all. Time will bring the answer.
Author: Jacek Frączyk, journalist at Business Insider Poland
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