GraceKennedy announces participation in latest bond swap

Wednesday, March 27, 2013

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GOVERNMENT has launched another debt exchange programme.

This was confirmed by GraceKennedy last night, as the conglomerate announced the participation of two of its subsidiaries — First Global Bank (FGB) and First Global Financial Services (FGFS) — in a programme involving the exchange of a number of GOJ bonds, held by the companies, for ones with lower coupon and different tenors.

GraceKennedy anticipates a short-term hit on profitability, but said the participation will not materially affect the financial position of the group, nor will it affect FGB and FGFS continuing to meet their regulatory ratios and requirements.

Government made the offer last Friday as it seeks to fill a reported $10-billion shortfall following the close of the National Debt Exchange (NDX).

"This was considered to be in the best long-term interests of the shareholders of GraceKennedy, based on the understanding that the signing of the country's agreement with the International Monetary Fund (IMF) was contingent upon the full
take-up of this Private Exchange Offer by the GraceKennedy Group and other participating companies," said GraceKennedy Group CEO Don Wehby.

"It is important that the country takes this opportunity to execute on the economic medium term strategies to ensure that the agreed targets with the IMF are met. It is anticipated that this will allow for a return to the stability of the financial markets and provide the platform for the future growth of the economy," he added.

The NDX was launched last month in an attempt to lower the Government's annual finance costs by $17 billion, shaving an average of two percentage points off interest rates on $860 billion of the country's d omestic debt. Finance Minister Dr Peter Phillips had explained that without a 100 per cent subscription to the NDX, Jamaica would not have been able to secure the IMF's support for funding.

At the end of the first deadline, on February 21, the Administration announced a more than 97 per cent take-up of its offer. After an extended deadline, participation went closer to 99 per cent, with the Government reportedly forced to approach private businesses to fill the gap.

According to one source, Government had mulled bridging the shortfall through an asset tax, but eventually decided to go along the lines of a debt exchange.

"This does not bode well for investor confidence," said one financial analyst, who asked not to be named.

"It looks very sloppy; someone should be held accountable."

Sources say large holders of government bonds, including Scotiabank, National Commercial Bank, Jamaica National, Jamaica Money Market Brokers, and Victoria Mutual, were approached by the Government to participate in the latest debt exchange.

It is unclear which other companies, outside of the Grace subsidiaries, will participate.

NDX was in effect a sequel to the Jamaica Debt Exchange programme implemented by the previous Administration in 2010.




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