Last week Wednesday (September 4) the Government of Jamaica announced an invitation to its Eurobond debt holders to tender for cash Government of Jamaica 11.625% notes due 2022, 9.250% notes due 2025, 7.625% notes due 2025 and 6.750% notes due 2028 which expired as planned on Tuesday, September 10, 2019.

The invitation was conditioned on, amongst other things, the pricing and closing of an international capital markets transaction in an amount acceptable to Jamaica. On Wednesday, a week after the tender invitation, Jamaica’s longest Eurobonds, maturing in 2045 were reopened to finance the buy-back.

Bank of America and Citigroup led both the buy-back and the bond sale to finance it.

Overall Jamaica paid US $1.2 billion for the debt, with a face value of about US $970 million, the difference reflecting the price premium on the various bonds purchased.

Calculated by face value only, the Government bought back US $41 million of notes with an 11.625% coupon due 2022, US $98 million of notes with a 9.25% coupon due 2025, US $399 million of notes with a 7.625% coupon due 2025, and US $430 million of notes with a 6.75% coupon due 2028.

The US Securities and Exchange Commission (SEC) filings indicated the Eurobond sale to finance the purchase was for just under US$1.04 billion (or a face value of US $815m of its outstanding 7.875% securities due in 2045), at a yield to maturity of 5.8%, with market sources suggesting that up to US $3.25 billion was bid for, or a coverage ratio of over three times.

Sean Newman, a Jamaican senior portfolio manager at leading asset manager Invesco, told Bloomberg News that the deal “won’t add to the nation’s total debt load” and that the sale “is a great stamp of approval and shows confidence in their ability to manage fiscal accounts. I wouldn’t be surprised to see an upgrade post-deal”.

He adds that the deal “shows policy runs economies and not politics. Look no further than southern neighbours where the opposite is true.

“The Government needs to continue to monetise savings in areas like security and infrastructure in order to sustain and promote development.”

One large international player who participated on both the buy and sell side advised that Jamaican 10-year and under bonds had seemed quite expensive, but that they would have had more appetite for a new longer bond at par, as opposed to the price of nearly $130 (a premium over the face value of 100) at which the existing 2045 bond was reissued, a sentiment that would likely be shared by local buyers such as pension funds. Nevertheless, he was surprised at the very high demand for the issue.

There is as yet no indication as to how the difference will be funded. However, Jamaica this year cut its public debt to under 100% of its gross domestic product for the first time in nearly two decades, and Jamaica could just repay debt on a net basis as it is running fiscal surpluses, or reissue the balance in the very liquid local market in Jamaican dollars as part of a planned shift to local borrowing to reduce its external risks as outlined in its budget documents earlier this year.