New GOJ, cap market issues set to collect NDX outflows

Business reporter

Wednesday, May 10, 2017

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Seeking to capitalise in a market set to swim in liquidity this week as it pays out $64 billion in NDX bonds, both the Jamaican government itself and private investment companies are setting their cap for the funds which will become available.Meanwhile, the feedback from pension funds and other investment portfolio holders is that they will judge each offer on how it matches their needs in the short, medium and long term.

The National Insurance Fund (NIF), which at $90 billion in assets is the largest local pension fund, indicates that it will be putting 2017 NDX payments on repos, as the money is needed over a short time frame to pay the fund's clients who include pensioners and the indigent.

For those with an appetite for longer-term instruments, NCB Capital Markets will on May 10 open a $6-billion 8.5 per cent bond, for which the required minimum investment is $100,000. The bond will mature in three years with quarterly interest payments made meanwhile.

The offer will close on May 31.

The Government itself will this week roll out an auction for $5 billion of 2037 at 10 per cent, and an unlimited offer of the existing 2046 offered at a yield of 11 per cent. The 2046 is currently priced at 11.25 per cent.

Evette Bryan, manager Treasury & Trading, Victoria Mutual Wealth Management, noted that there are at least four alternative investment company proposals from several financial institutions, including VM Wealth Management and VMBS with their issuance of deferred shares.

She noted, “The appetite of pension funds for GOJ vs alternatives at this time is as it always was, influenced by the structure/terms of the alternatives being put on the table.

“The major question is, does the structure of the instrument match the objective of the individual fund requirement in the context of economic projections and overall investment strategy, both for the short and long term?”

In relation to the GOJ offer, she said, “Of the two, our preference would be with the auction that gives the option of attaining your determined yield, whilst having the shorter tenor of the two.”

She said that that while the Ministry of Finance and Public Service has not stated its desired inflow for the 2046, “…we note that the last unlimited offer of the 7.75 per cent 2022s at a yield of 7.50 per cent pulled in over $12 billion.”

As regards VM Wealth's portfolio in government securities, she said that while GOJ debt since the NDX was notably not as tradable as before the NDX and there has been no significant public issue since that event, until recent times, the issues are valued for the company's repo portfolio.

“The company looks at GOJ debt with the same merits it would any other debt, in terms of tenor and return, if they were suitable with the objectives of the organisation. It should also be noted that as a securities dealer with a repo book, GOJ debit is still the most suitable option for client collateral that is sanctioned by the regulator,” Bryan stated.




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