Largest-ever debt raised from international capital markets carries 7.65% interest rate

The Jamaica government raised US$800 million ($89.6 billion) in debt from the international capital market yesterday.

What was apparently originally meant to be a US$500 million deal was upsized to accommodate the final order book of over US$3.8 billion from over 200 different accounts, primarily institutional investors in the US and in Europe.

The new global SEC registered Eurobond represented Jamaica’s largest international bond issue on record, and carries a 7.625 per cent interest rate, beating market expectations for a minimum eight per cent on a deal of this size.

What’s more, proceeds from the issue are to be used to pay off a (euro)150 million bond, which carries an interest rate of 10.5 per cent and which becomes due at the end of October.

Receipts are also to be used for general budgetary purposes including financial investment and the refinancing of domestic and external indebtedness.

The new bond, which was underwritten by Citibank and France’s BNP, matures in 2025, but principal repayments are to be made in three equal tranches from 2023 to 2025.

Oppenheimer trader Gregory Fisher described the deal as “a real coup for Jamaica” as it provides an opportunity to “rebalance the Jamaican yield curve” by “restructuring it to more desirable lending rates”, for example through refinancing Jamaica’s Eurobond maturing in 2015.

He added that the market in Jamaican bonds “is strong, and there is nothing but buying”.

Sovereign analyst for huge Boston-based global fund Grantham Mayo Van Otterloo & Co (GMO), Carl Ross, commenting on the success of the Jamaican issue, notesd:

“In addition to the favorable global liquidity environment, in which virtually all issuers have access, Jamaica is benefitting from two major factors. First, its fiscal adjustment has been huge, under the auspices of the IMF program. The fiscal accounts will be near balance this year, which is an impressive achievement when you compare it to similarly rated countries like Ghana, Barbados, Honduras, and others. Second, technicals are favorable because the emerging market investment world is structurally underweight Jamaica, due to the large amount of bonds held by resident Jamaicans.”

Jamaica Money Market Broker’s Julian Mair agreed: “The international Capital Markets have spoken with their wallets, giving a vote of confidence in Jamaica’s economic outlook.

“This is Jamaica’s largest bond issue ever, and must be viewed as a very impressive deal for the Government of Jamaica. The deal was priced tight to the current GOJ Global Bond curve, indicating very little new deal incentive to investors. This not only speaks volumes with regards to Investor appetite for the credit but also implies a market validation for all existing GOJ Global Bond prices.”

Stocks and Securities CEO Mark Croskery believes that the deal could “re-awaken local retail investor interest in the Jamaican Eurobond market”, which has been waning over the past few years, particularly for those clients who want an interest rate above seven per cent with a shorter maturity.

Jamaica’s gross financing needs for the current fiscal year were projected at $72.8 billion, split between a negative public sector deficit of just under J$7.5 billion, domestic principal repayments of $8.8 billion and $56.5 billion in external repayments.

In addition to the approximately US$200 million to repay the October Eurobond includes, external repayments include approximately a net of US $163 million to repay the IMF, that figure being the net of US$163 million in disbursements and US$422 million in repayments.

Petrocaribe, at US$327 million, appears to be the majority of the $45 billion projected as official financing for this fiscal year, as the IMF includes as part of that official financing 70 per cent of Petrocaribe annual inflows.

The projected support of the other multilaterals of US$210 million appeared to be mostly in the second half of the fiscal year.

In short, Jamaica’s budget is now fully financed, meaning that it shouldn’t have to resume borrowing domestically, and the net international reserve target for the end of this fiscal year of US$1.594 billion should also be exceeded.