By Lavern Clarke, Staff ReporterREFUSING TO pay what Kingsley Thomas said he considered too high a price on the US$75 million he was trying to raise for Highway 2000, the project head backed away from the US capital market in July from offers that were coming in at over eight per cent.
To date, Jamaica has raised US$114 million for the highway, US$40 million of which is a one-year bridge loan secured in March this year to cover costs until the US$75m was secured.
The premium demanded to compensate for Jamaica's risk was above expectations despite an Overseas Private Investment Corporation, OPIC guarantee that insured US lenders and investors against country and project risk, and which Thomas said, gave the debt a 'AAA' rating.
"I thought that the price for a 'triple A' instrument was too high," he told Wednesday Business, "so I stopped us going to the market." He had wanted a rate under seven per cent.
A guarantee from OPIC serves "to reduce the margins applicable on the (loan) facility," said Thomas, "because now it is really being backed by the US government."
Although Jamaica is trying to face down an estimated $5 billion a year extortion racket that mainly targets infrastructure projects, deal with spiralling murders and re-energise the economy, Thomas said local conditions would not have affected the high-price offers since the bond was backed by the US agency.
NEW DEAL UNDER REVIEW
The National Road Operating and Construction Company chairman who leads a negotiating team that includes advisors from the legal firm Allen and Overy out of New York and international auditors PricewaterhouseCoopers is currently reviewing the term sheet on a new deal with a US bank that is "under active consideration", which will put the full US$75 million in Jamaica's hands by year end, said Thomas.
He refused to divulge the name of the bank but said the repayment terms are being negotiated around the 6-month London Inter-bank Offer Rate, LIBOR plus a reset of one per cent.
The six-month US dollar LIBOR as at mid-September was 1.178 per cent.
Thomas is pushing for a long-term loan with a tenor of up to 15 years, and is negotiating, he said, for a grace period of six years before starting payments on the principal.
It is the final tranche of the US$149 million that NROCC needs to raise in total to cover a US$107 million loan to developer/concessionaire TransJamaican Highway to finance 27 per cent of the US$390m of the phase one cost; while the other US$42 million will finance the operations of NROCC, as well as preliminary work to get the other phases of the project and its sub-projects to implementation. The toll road agency has an annual operations budget of under US$1.5 million.
SIX-MONTH DEADLINE
The agency has another six months to repay the bridge loan secured from the US branch of a European Bank which Thomas also declined to name, to finance NROCC in the interim, service its loan, and buy land.
The US$40 million, plus interest of "less than six per cent", will be repaid from the loan now being negotiated, he said, as soon as the funds come through.
The other US$74 million ($3.55b) raised December 2001 in the form of an infrastructure bond, will be redeemed in 30 years. The bond's principal is indexed to inflation, and is adjusted half yearly based on Jamaica's CPI. Interest on the bond is fixed at 4.5 per cent. Bondholders can convert their subscription to equity starting from year 20.
According to Thomas, NROCC is already showing "fairly healthy" profits from interest earned on the invested portion of funds borrowed. "The yield on our investments is higher than the interest cost on our borrowings," he said. The financials become public in two weeks when the company's returns are filed.
NROCC began disbursing funds on a monthly basis to TransJamaican in April in fulfillment of its loan obligation, which, alongside legal and land acquisition expenses, leaves the agency, said Thomas, with approximately US$56 million in principal as at August, out of the US$74 million raised in bonds. The US$20 million cost Jamaica invested to bring the toll road project to implementation has been assumed by TransJamaican as agreed in the concession contract at the rate of LIBOR plus 4.5 per cent. The funds form become part of the US$107 million loan which the developer begins repaying in 2007.
