Gov Looking To Borrow Up To £400m

Treasury Minister Alf Cannan will later this month ask Tynwald to approve a gov debt issue of up to £400m.

The plans, which are dependent on members’ support and market conditions, comes as government owned companies seek to refinance their internal and external debts. But the Treasury Minister insists the gov’s finances are in good shape. 


If agreed to, the debt issue will include a £160m refinancing of the Steam Packet and a £178m refinancing of the current Manx Utilities internal debt to the Treasury. The remaining balance will be additional funds for future investment. However, the exact sum of any borrowing will not be finalised until all market-related options have been examined and considered.

Mr Cannan said that the gov’s finances ‘are in a healthy condition and while this is certainly not a case of borrowing to pay for the pandemic, nevertheless the cost of the pandemic may restrict plans for future investment’.

He added: ‘There are three other important factors to consider. Firstly, it was always the intention that the Steam Packet took on an appropriate debt structure to pay for both the Manxman cost of £80m and to repay a Government loan of £76m. The debt issue will allow for this to happen in a cost-effective and suitable manner. 

‘Secondly, with interest rates at a favourable level and in considering both the impact of Covid but also likely future commitments for infrastructure on our island, it is an appropriate time to undertake this exercise. Thirdly, the refinancing of Manx Utilities’ internal debt can be managed in such a way so as not to disturb their financial plans and incur additional consumer cost.’

The Treasury has appointed external professional advisors to assist with the process and in a further motion to Tynwald, the Minister will also seek to bolster the contingency fund available to the Treasury for unforeseen expenditure by £20m. 

Speaking to Gef, Mr Cannan said it was not a case of moving the Steam Packet’s debt to the taxpayer and said that post Covid, the company will remain profitable.

He said: ‘When we bought the company for £124m, we put £45m of equity into the business and we structured the rest, so what we said was we’re buying you for £75m but you owe us that money so that’s what they’re paying back. So of the £400m we will have £320m effectively in cash given to the gov, £80m will go to the Steam Packet and then the Steam Packet and the MUA will repay the money.’

Why Now?

Mr Cannan said that while Covid has ‘had an impact’ on gov’s finances, we still have over £1.5bn in reserves and funds are forecast to recover in the next 18 months to two years. He said that the current low level of interest rates make this the ‘right time’ for the gov to go out and borrow the money and ‘add to the warchest for the future and put the island in a good position’.

While the Treasury is seeking Tynwald approval, Mr Cannan said that the gov does necessarily need the money and if the conditions and terms available aren’t what the gov wants then it won’t be borrowing the money.

Are we Saddling our Kids With Debt?

Well according to Mr Cannan, no. He told Gef: ‘Both the MUA and Steam Packet, who are providing the basis for the majority of the borrowing, it [the debt] was already going to be there effectively in terms of the Steam Packet’s plans and the MUA is already paying back that money to the gov anyway with a 2% interest rate. So actually it doesn’t materially change that, it might add £2m or so, potentially, to the revenue account but that’s minimal when you look at the overall picture. So we’re not recklessly adding debt to the gov’s portfolio, I think there are very solid foundations in terms of how this gets repaid.’ 

Where Will the Money Go?

After the £80m for the Steam Packet, the gov will be left with about £320m. Mr Cannan said that of this, £260m will go into the reserve to be managed and £60m will go into long term infrastructure projects. 

What is A Debt Issue?

Essentially a debt issue is a financial obligation that allows the issuer [in this case the Gov] to raise funds by agreeing to repay the lender at a future date and in accordance with the terms of contract.

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