(Bloomberg) -- The Scottish government’s hunt for a financial adviser for the nation’s debut bond sale is proving more costly than anticipated.
The estimated total value for the contract is now £1.5 million ($1.9 million) excluding taxes, according to the latest tender. That’s triple the initial £500,000 estimate in a prior notice circulated last month. N.M. Rothschild & Sons Ltd. provided consultancy support to produce the tender.
The financial commitment is the most concrete sign yet that officials in Edinburgh are serious about a bond sale, as they target issuance before the next Scottish election in 2026. An internal review in December found selling bonds can offer value for money compared to other forms of raising money.
While Scotland is part of the UK, the administration in Edinburgh has some law-making powers and has had the ability to issue bonds since 2015. It’s seeking a firm to advise on its strategy, including the timing of sales, frequency, and whether the securities should raise money for environmental projects.
A Scottish government spokesperson said it is conducting due diligence to determine the best conditions for a successful sale. “As with any organisation going through an inaugural bond issuance, this requires external advice and the procurement process for this is underway,” they said. N.M. Rothschild & Sons declined to comment.
Scotland has so far opted to effectively borrow from the UK government via the National Loans Fund. Back in 2019, when officials previously explored bond issuance, they found that a sale would offer few benefits from a “raw” financial perspective.
While the market’s focus will be on where the bonds might price relative to the UK’s debt, the Scottish government — run by the pro-independence Scottish National Party — is taking a more holistic view on the benefits. Some of the advantages identified by officials include the opportunity to develop relationships with lenders, obtain a credit rating and promote Scotland’s broader “investment story.”
Scottish bonds may become part of the nation’s independence debate. While they would showcase that Scotland can raise funds on capital markets, opponents of secession could use any spike in borrowing costs as the market warning against the economic case for independence. The UK’s new government is itself facing pressure over its finances from a recent surge in bond yields.
Investors, meanwhile, will be conscious of what would happen to the debt if Scotland were to break away from the three-centuries-old union with England and Wales. A poll commissioned by the Sunday Times last month found backing for independence rose to 54% when undecided voters are excluded.
(Adds details on N.M. Rothschild & Sons role, and context.)
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