Global investors warm to JA bonds


Sunday, June 15, 2014

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FINANCE Minister Peter Phillips is expected to start meetings with global bond investors in Europe tomorrow, following a non-deal road show in the US, where his team wrapped up discussions on Friday.

Investors seemed to have warmed to the idea of investing in Jamaican Eurobonds again, mainly due to fiscal and economic reforms that have been implemented under the International Monetary Fund (IMF) so far.

"The story looks pretty strong, relative to where the country has been," said Carl Ross out of the Boston office of international fund manager, GMO. "The fiscal effort looks phenomenal."

Oppenheimer's Greg Fisher figures Jamaica would be welcomed by the international capital market.

"Jamaica has shown an ability to push through the barriers to achieve positive growth, a positive signal to Wall Street that has been a long time in coming," said Fisher, who has traded more Jamaican Eurobonds than anyone else. "The Government can go to the capital market given that they have adhered so faithfully to the IMF agreement, particularly with respect to the critical fiscal targets.

"In today's world, that is an anomaly."

Bloomberg had previously reported that Citigroup had been asked to organise meetings for the Government with global bond investors, initially in New York from June 10-13, followed by meetings in Europe from June 16-18.

The Jamaican team included Bank of Jamaica Governor Brian Wynter, Financial Secretary Devon Rowe, the finance minister's technical advisor Helen McIntosh, and Dian Black, who is the acting principal director for the Debt Management Branch.

Invesco's emerging market senior portfolio manager, Sean Newman -- a Jamaican based at the fund manager'soffice in Atlanta -- reported that Jamaica's economic team advised that they were not planning to raise funds at this time, as the Euro maturity coming due later this year was "already covered".

In any case, he believes that "if they do decide to come to market, I think it will be well received".

Recent new issues by Bank of Brazil have been five times oversubscribed, stronger credits like Korea were ten times oversubscribed, and the average issue coming to market recently has been about four or five times oversubscribed, according to Newman.

What's more, Kenya, a country with credit comparable to Jamaica, was now on a roadshow to raise a ten-year, US$500 million Eurobond, which carries a rate of seven per cent. In the case of Ecuador, despite defaulting on its external debt several times in the past and its low CCC rating, the Latin American country is currently seeking to raise money for ten years at just eight per cent.

While the Jamaican Government was in the room, investors questioned the strength of the social consensus on the IMF programme (particularly the critical issue of public sector wage restraint), the extent of the commitment to restructuring the public sector, current fiscal year trends, the state of our net international reserves, current fiscal/tax reform measures, the pipeline for major international foreign investments in Jamaica, and how the current account deficit would be funded.

Notably, the team projected a reduction in the current account deficit to five per cent of GDP.

Newman described the economic team's presentation as a "good update", adding that "a few years ago, Barbados would have been the star of the region".

"How things have changed," he said.

Importantly, international investors were interested in Jamaica's commitment to not restructure the external bond debt, which remained untouched, following three debt exchanges in three years. The Jamaican team assured that external debt restructuring was against the constitution.

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