CLAIMS that Scotland would not be able to successfully issue bonds are “nonsense” and “highly misleading”, according to an expert on political economy.
Dr Iain Hardie, an honorary fellow at the University of Edinburgh and former investment banker who specialised in emerging bond markets, dismissed claims made by London media that Scottish independence would be “dealt a fatal blow” by the bonds.
He also described the idea that there are “not enough letters in the alphabet to cover how low Scotland’s credit rating would be” as “silly".
However, he said the term of the bonds could provide some interesting insights into investor attitudes towards future Scottish independence.
The plan for Scotland to issue bonds for the first time was announced at the SNP’s annual conference in October by Humza Yousaf.
The First Minister said it would help raise Scotland’s profile and engagement with international investors to attract investment.
Speaking to the Sunday National, Hardie said in terms of any sort of huge negative reaction, it was “much ado about not very much”.
But he said one question which could be argued is about the message on independence which will come back from a bonds issue.
He pointed to the example of bonds issued by Aberdeen City Council in 2016, raising £370 million to help finance a £1 billion capital spending programme.
But he said: “The important issue about the Aberdeen bond is that you couldn't claim that with some sort of huge vote for confidence in an independent Scotland.
“If you look at the terms of that deal it had what’s called a ‘put’ option, which is basically the option for the investor to get their money back early.
“And there were two important conditions - one was Scottish independence, and the other was if there was a huge divergence between Aberdeen’s rating and the UK's rating.
“So what that means is obviously if the investors got their got the option to get their money back if Scotland becomes independent.
“Then that's not a huge vote of confidence in an independent Scotland.
"Similarly if they have the the option to get their money back because there is a big divergence between the UK’s rating and Aberdeen’s rating then that’s a sort of belt-and-braces protection for the investor, if there is some sort of big change in terms of the relationship between Scotland and the UK short of independence.”
However, he also pointed out that the Aberdeen bond is not due to be repaid until 2053 – and with the future of the UK unknown, investors were likely to want to have protection over that number of years.
Hardie said: “If you then draw that conclusion to a Scottish bond issue and if Scotland had to include those sort of provisions - in other words, investors could get repaid if there was independence or could get repaid if there was a big divergence between Scotland’s rating and the UK - then I think that from the sort of claims that Humza Yousaf is making for the bonds issue demonstrating the sort of credibility we would need if we were independent, you would take that as a pretty negative signal.
“But conversely, if they didn't have to pay that, then what you would be looking at is saying 'well, how long before the bond is repaid' in terms of trying to understand how positive a signal that might be.”
He said a short-term Scottish bond issue of five years would not reveal much.
But he added: “If they were to come out with a 30-year bond, not repaid until a similar time to Aberdeen and investors were not getting any protection against independence, that would be a pretty positive view.
“So what we can draw is going to be very much determined by the details of the bond issue.”
