Fitch Ratings has down-graded state-owned Clarendon Alumina Production Limited (CAP), a day after it cut Jamaica's sovereign rating.

CAP's foreign and local currency rating was dropped to 'CCC' from 'B-', with a negative outlook.

The company's US$200-million bond due to mature in November 2021, was also downgraded from 'B/RR4' to 'CCC/RR4'.

The bonds are priced at 8.5 per cent.

Working against CAP is its 100 per cent ownership by Government, which three ratings agencies have placed on watch, in anticipation of a debt default.

CAP, a 24-year-old company, is the vehicle used by Jamaica to hold its now reduced 45 per cent holdings in the Jamalco Refinery, a business it owns in partnership with Alcoa, whose stake is now 55 per cent.

Jamaica became a minority partner back in 2007 under a deal in which Alcoa pumped in new cash to upgrade the refinery to 1.4-million tonne capacity, getting in return an additional five per cent equity.

Jamaica on Tuesday hit a triple with Fitch's downgrade on the long-term foreign and local currency debt from 'B' to 'CCC', saying any attempt at debt restructuring would be read as a default.

Similar actions have been taken by Standard and Poor's and Moody's.

"Limited policy options to meet the fiscal challenges raise the possibility of some form of debt restructuring," said Fitch analyst Shelly Shetty in a statement from the rating agency.

The rating agency says it expects the fiscal deficit to round out the year at 9.0 per cent.

It compared its new forecast to Jamaica's original 5.5 per cent estimate, though Finance Minister Audley Shaw already put a new target of 8.7 per cent on the table at the close of September when the revised budget was presented to lawmakers for passage.

The Fitch downgrade comes two days after Prime Minister Bruce Golding, speaking at his party's annual conference in Kingston, pitched part of his message to overseas creditors, saying Jamaica was not about to default on its debt - suggesting that Jamaica's word is no longer seen as its 'bond'.

Golding also said Sunday that when debt servicing charges and wages are paid, central government is left with only $70 billion - around 12 per cent of the total budget - to run the country.

Jamaica, as such, needs to strike a deal with the International Monetary Fund (IMF) that would loosen up lending from multilaterals.

Fitch, in its release Tuesday, suggested the delay in finalising an IMF agreement was causing nervousness in the market.

"Delays in negotiating a critical IMF stand-by continue to weigh on investor confidence," its statement said.

Jamaica has at least US$2.6 billion of bonds trading internationally, priced within a range of 8.0 per cent to 11.75 per cent, and due to mature between 2011 and 2039.

The national debt is now at J$1.3 trillion and climbing.

Fitch expects the debt to climb to more than 120 per cent of GDP in 2009/10, with expectations that interest charges could exceed 55 per cent of revenues.

The agency was also bearish on prospects for GDP growth, and international trade, saying with Jamaica's fortunes so closely tied to the still recovering United States, its prospects for growth were "highly uncertain".

"While the Government's willingness to service its massive debt burden has traditionally been high, its capacity to do so is being seriously jeopardized by the magnitude of the macroeconomic and fiscal shocks the country faces," said Shetty.

Negative outlook

Fitch's outlook on Jamaica remains negative, indicating that further downgrades could occur in the short term.

Standard and Poor's rating was cut to CCC and Moody's to Caa1 from B2.

In its outlook on CAP, Fitch said Alcoa ends up with the other 45 per cent of Jamalco that Jamaica has put on the market.

"Fitch notes that Alcoa has a right of first refusal on buying the shares, and could possibly end up with 100 per cent ownership of Jamalco if it chooses to exercise this option," said its statement on CAP issued Wednesday.

lavern.clarke@gleanerjm.com

SOURCE: Financial Gleaner, Friday, November 27, 2009