ON Thursday, June 11, a headline by the leading global news provider Bloomberg (by Bill Faries and Katia Porzecanski) screamed Jamaica May Sell Bonds to Repay Venezuela, Oppenheimer Says.

Their article noted that Jamaica may sell eurobonds to pay off about US$3 billion in oil debt to Venezuela in October, quoting Oppenheimer and Company analyst Lucila Broide.

Just over one week earlier, in my June 3 Jamaica Observer article, What does Moody’s credit upgrade mean for Jamaica, referring to the upgrade of Moody’s by one notch on May 28, I had quoted Broide in more detail on the same issue.

“We still expect Jamaica to do some type of liability management and buy-back of the PetroCaribe debt, which would be a boon for the country’s credit profile in our view. We believe that such operation could take place closer to October, as Venezuela’s debt service peaks that month with a PDVSA amortisation of US$1.4 billion. Venezuela’s total debt service in October is estimated at US$2.01 billion, well above the average US$450 million between April and September.”

Broide had projected that the timing would likely mimic the PetroCaribe buy back operation by the Dominican Republic last February, which occurred just before the demands of the big March amortisation of Venezuela. She argued that Jamaica would probably seek a discount similar to what the Dominican Republic received in January, when it raised US$1.9 billion to pay US$4.1 billion in Venezuelan debt early.

In her response to Bloomberg, Broide added that a bond sale is just one of several potential financing alternatives available to the island. These included selling just US$500 million in bonds and tapping about US$1 billion in savings set aside while being a member of Venezuela’s PetroCaribe energy programme, essentially referring to the assets of the Petrocaribe fund.

She told Bloomberg, “Jamaica has been very good in saving those funds.” Broide believes a deal to pay off Venezuela “would be a win-win-win” for Jamaica and Maduro’s government, citing the reduction of the Caribbean island’s debt to gross domestic product (GDP) ratio, and Venezuela’s cash needs. Since the programme was conceived in 2005 by then President Hugo Chavez, Venezuela has sold more than US$28 billion of oil to countries across the Caribbean and Central America, Bloomberg advises. In its piece, Bloomberg noted that Finance Minister Peter Phillips had said in an interview with the Jamaica Observer newspaper in February that the government was “actively pursuing” its options regarding PetroCaribe debt.

Last week Wednesday, Standard and Poors upgraded Jamaica to B from B-, five steps below investment grade, and placing the US$14.4-billion economy in the same category as Ethiopia and Albania, according to Bloomberg.

The timing of the Bloomberg article appears to have been prompted by the news that the Jamaican government was embarking on a supposedly non-deal roadshow, through Citibank, starting in Los Angeles on June 16, reaching New York on June 18, heading to Boston on June 19, flying to London on June 22, Germany on June 23, and ending in Amsterdam on June 24.

The decision by the government to do a non-deal roadshow now (the main difference between a deal and a non-deal roadshow being that one decides to do a deal at the end of a non-deal roadshow) may be the recognition that this is as good as it is likely to get in the international bond market, in terms of the pricing of Jamaican government bonds, as the risks are rising.

Greeks bearing gifts

For example, on the same day as the alert on Jamaica’s non-deal roadshow, Bloomberg revealed that the IMF’s Greece negotiation team has left Brussels, citing “major differences in most key areas” — taxes, pensions, financing — and that “there has been no progress in narrowing these differences recently, and thus we are well away from an agreement”, according to an IMF spokesman. These are some of the strongest comments yet from the IMF. The IMF appears to be under heavy pressure on Greece from non-European members (apart from the US, of course, which is in favour of a solution).

Although the IMF left a back door open, reiterating IMF head Christine Lagarde’s very politically astute remark that the Fund never leaves the table, they nevertheless noted the ball is now “very much in Greece’s court”. An agreement has become much more difficult as, firstly, if the IMF withdraws, the European creditors could be forced to make up the difference. Some Europeans, especially the Germans, would very much prefer to keep the IMF on board, not least for their own domestic political reasons, as they would face extreme reluctance from their population if they were seen as financing the bailout alone. This increases the pressure on Greece to at least offer some reform along the lines of the “institutions”, their new name for the IMF and the Europeans. This leaves a purely European political solution as the remaining possibility, requiring intense negotiations, and is likely to lead to much heightened market volatility.

Citibank for PetroCaribe

It appears then, that, as expected, Citibank has won the bidding process to do the two-step PetroCaribe debt deal, and has correctly advised the government that there is no upside in waiting anymore. The first step would be for Jamaica to raise roughly US$1.4 billion (the estimated cost of the PetroCaribe debt buy-back deal) in the international capital market before the end of June (the new drop-dead date for the Greek crisis when the Greeks say they will run out of money and can’t pay the IMF, thereby defaulting.)

Obviously, Jamaica needs to raise less to the extent it uses other sources of funds, particularly as its net international reserves have just reached a new high of US$2.4 billion, up 20 per cent in the month of May. Ideally, some of this debt buy-back would be financed by cheaper multilateral funding, as recently suggested by shadow finance minister Audley Shaw in Parliament, although this currently appears unlikely.

Absent a financial market “heart attack” in the run-up to June, perhaps prompted by Greece, it is likely that the Government will seek to raise the money this month to do the Venezuela deal next month, or shortly thereafter, all depending of course on the Venezuelans’ need for cash.