DAVIES Keith Collister, Business Writer
Jamaica yesterday raised US$350 million on the international capital market, a take which was not only US$100 million more than Finance Minister Omar Davies initially requested, but likely to fulfil most of his foreign borrowing needs for the coming fiscal year.
International money market sources say that the Eurobond issue, shepherded through the market by Citigroup, is repayable in three annual instalments between 2037 and 2039, with yield of 8.125 per cent, a half a per cent higher than the current yield on comparable 30-year-Jamaican bond issued by Deutsche a year ago.
Davies was prepared for a yield of up to 8.25 per cent on the debt, which was the original price guidance given Citigroup, but heavy over-subscription of the offer - rumoured at near US$1.8 billion - shaved an eighth of a percentage point from the rate.
"Due to excessglobal liquidity, especially the excess liquidity of European, Asian and North American buyers, the initial guidance of 8.25 per cent was very attractive, regardless of an under performing Government of Jamaica fiscal deficit," said Mark Croskery, the deputy general manager of the Jamaican brokerage house, Stocks and Securities Ltd.
Unusual feature
The staggered amortisation of this debt, market analysts point out, is an unusual feature of the offer. Most emerging market eurobonds are 'bullet' issues, meaning that they require a one-shot repayment at final maturity.
Apart from the headline maturity on March 14th, 2039, the bonds average maturity of 2038 reflects the early part repayment of principal. The staggering is a clear attempt to spread the debt servicing impact, so that external debt repayment doesn't bunch in one year. This is in line with the current advice of the International Monetary Fund as well as recent international debt offerings from countries such as the Dominican Republic and Uruguay.
The success of yesterday's offer notwithstanding, some analysts question Davies' strategy of going to the market with the new, longer bond, rather then re-opening the 2036 bond deal.
"Thirty years is so far away that the bunching doesn't matter," said one international banker, arguing that by doubling the size of our current 30 year bond - which matures in 2036 - to US$500 million or over, Jamaica would likely have been able to get one of its issues into the main emerging market bond indexes. This, he explained, would attract more buyers, subsequently achieving lower interest costs on its debt.
Stocks and Securities' Croskery noted the yield on the offer - rated B1 by Moody's Investors Service and B by Standard & Poor's, which only the day before had reaffirmed Jamaica's single B rating - remained significantly higher than what prevails in the market on debt instruments, including key emerging market bonds. For instance, triple AAA U.S. Corporates are currently yielding 4.95 per cent to 5.50 per cent while Brazil's debt yield between 5.75 per cent and 6.25 per cent. Moreover, the Jamaican offer came with global traders having already priced in the very strong likelihood that the U.S. Federal Reserve will cut their interest rates by 25 basis points (one quarter of one per cent).
"Global investors are very hungry for a fixed income yield above 8 eight per cent, which seems to be the psychological yield level that entices investors' to jump in," said Croskery.
The Jamaican bond was not offered to local investors, but they are expected to be players in the after-market.
"Local pension funds and other Jamaican-based financial sector buyers will find the issue attractive due to the fact that it offers a yield premium above the pricing of the 2036 GOJ bond," Croskery said. "The new bonds could possibly race up to 102-103 in price as the yield moves downwards to match the current GOJ yield curve."
