Asia-PacificPolicy Updates

Vanuatu Launches AUD-Denominated CBI Bond Investment Option

Christian Henrik Nesheim ,  ,  ,  ,  ,  ,  , 
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Christian Henrik Nesheim

According to a government gazette published today, applicants will henceforth have the opportunity to apply for Vanuatu citizenship on the basis of a bond investment.

The bonds, which are denominated in Australian dollars, will have minimum investment amounts ranging from AUD 150,000 (US$ 99,770 at today’s rates) to AUD 180,000, depending on the time to maturity:

  • For bonds maturing in 3 years, the minimum investment is AUD 150,000
  • For bonds maturing in 2.5 years, the minimum investment is AUD 170,000
  • For bonds maturing in 2 years, the minimum investment is AUD 180,000.

The Reserve Bank of Vanuatu will issue the bond units, which will not be interest-bearing.

Technically speaking, the new policy represents the only sub-$100,000 citizenship by investment option available globally, though it would not take much of a currency fluctuation to bring also this option into the US$ six figures.

See also: Why Vanuatu Decided to Allow Payment for Citizenship in Multiple Currencies.

A single master agent

The government, moreover, will designate a single Master Agent to market the “Investment-Government Bond Option” (“IGBO”) globally. The Master Agent, rather than the government, will receive the application, whereupon it must provide the Secretary-General with a nomination form, along with the customary accompanying documentation.

Beyond the principal investment itself, applicants will need to pay an application fee of VT 5,000 (US$42), a certificate fee of VT 10,000, as well as an AUD 7,500 (roughly USD 5,000) fee to the Master Agent. The Master Agent must pay the Government a bond transfer fee of AUD 1,500 “as and when a transfer occurs”.

The Master Agent must further pay the Citizenship Commission fees for each application, according to the following framework:

  • Single applicant – AUD 20,000
  • A couple – AUD 30,000
  • A couple and one child – AUD 45,000
  • A couple and two children – AUD 60,000
  • Every additional child dependent – AUD 7,500

The Master Agent, as a consequence of this framework, will make its money by a) the AUD 7,500 fee paid to it by the applicants and b) whatever margin it applies above the prescribed AUD 20,000-AUD 60,000 fees it must pay to the government.

The government appears not to have selected a Master Agent yet and has not stated the criteria by which it would make its decision.

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Strapped for cash?

Vanuatu’s government revenue has diminished considerably since the European Council suspended the country’s visa-waiver regime with the Schengen area last year. Earlier this year, the European Council gave Vanuatu 18 months to “fix” its CBI programs or see the suspension become permanent. Program observers have indicated they consider the chances of Vanuatu regaining Schengen access slim and have suggested they instead cut prices to focus on the mass market.

Laszlo Kiss, CEO of Discus Holdings, an RCBI advisory firm that has historically been an important international promoter of Vanuatu’s CBI programs, believes the new bond option reflects a government that lacks cash but doesn’t want to cut minimum investment requirements:

“I have a feeling that because of the damage caused by hurricanes, the government needs cash badly,” remarks Kiss. “And although we have little recent data, the loss of Schengen did not help the financial situation.”

Characterizing a bond option as a way of making Vanuatu CBI cheaper for the applicant without cutting investment requirements, Kiss points out that the capital outlay is now roughly the same for bonds and donations, but that the bond option will become more attractive because of the (presumed) repayment.

“When we calculate the cost of the AUD 150,000 non-interest bearing bond investment by adding the foregone 6-7% interest due to inflation, we nearly get the same amount of cash layout as the donation of AUD 181,000,” he explains. “As investments in bonds are expected to be repaid, the bond option is a better value than a donation, which provides no possibility for the return of any cash.”

He adds a final caveat:

“On the other hand, Vanuatu bonds are not rated by the big rating agencies, so the repayment risk is certainly non-negligible.”

Philippe May, CEO of EC Holdings, another RCBI firm, questions whether the bond-option will see the light of day:

“It is not certain that this option will materialize. Vanuatu also announced a real estate option a long time ago, yet we have seen no such thing.”