THE Bank of Nova Scotia (Scotiabank) is looking to expand its global capital markets business following the successful issuing of the Government of Jamaica’s (GOJ) US$1-billion unsecured bond.

This was the update provide by Scotiabank President and Chief Executive Officer (CEO) Lawren Scott Thomson at the 27th Scotiabank Global Banking and Markets Financials Summit on September 9 in Toronto, Canada.

Scotiabank, one of Canada’s largest banks, has long been active in capital markets through its Global Banking and Markets division, with transactions spanning securitisation, leveraged lending, debt capital markets, mortgage capital markets and real estate lending. Its international business, however, has traditionally been more focused on commercial banking, despite the broader group having significant investment banking expertise.

“We just led a US$1-billion sovereign deal for Jamaica last week. We had not done that in our 134-year history of the bank; that was the first one we had ever done. So, growing out that expertise…into clients where we already have great relationships, balance sheet deployed, that actually drives a pretty significant outcome,” Thomson explained during the summit.

The Government of Jamaica engaged Citigroup Global Markets Inc and Scotia Capital (USA) Inc as deal managers and joint underwriters for the global bond. The transaction began with a four-day roadshow on September 3, held virtually and in person in New York and London.

By the time the deal opened on September 10, investor feedback had been strong enough for the bond to initially attract pricing at an interest rate of 6.50 per cent. Once the deal was launched, the offer was priced at 6.25 per cent and was more than 2.3 times oversubscribed.

Scotia Capital (USA) underwrote US$450 million of the deal, earning US$765,000 as part of its underwriting discount, equivalent to 0.17 per cent of the amount underwritten.

Scotiabank has exposure to Jamaica through its 72.7606 per cent-controlled subsidiary, Scotia Group Jamaica Limited (SGJ). Thomson noted that the bank accounts for about 30 per cent of deposits in the country, but said its Global Banking and Markets (GBM) segment had not been as active in the international banking business on some of these capital market transactions.

When he asked Jamaica’s Finance Minister Fayval Williams why Scotiabank had not been involved in any of Jamaica’s sovereign issuances, she told him the bank had never asked.

“That kind of went, hit me like, holy smokes! Why do we not deploy that into some of these areas where we literally have primacy with all of these countries, right,” Thomson said as he explained the opportunity to grow Scotiabank’s capital markets business within its international banking operations.

While Jamaica was a major highlight for the Scotiabank CEO, he noted that the bank had also completed its first debt capital markets (DCM) transaction in Brazil, where it already has a significant lending business through Scotiabank Brasil S.A. Banco Multiplo.

Scotiabank was also involved in a major bond offering in Mexico, where Thomson said the bank acted as a lead arranger on a sovereign transaction. These deals have also led Scotiabank to bring on new Caribbean team members to deepen its investment banking capabilities.

“I think there are massive, significant opportunities, and this is all low-capital, high-fee type business. I think that will help transition and push that ROE higher in our international bank,” Thomson noted.

ROE refers to return on equity, a measure of how effectively a company generates profit from shareholders’ funds.

The Government of Jamaica bond was listed on the Luxembourg Stock Exchange on September 17 and has a September 2037 maturity date. It will begin to amortise in one-third instalments beginning in 2035 and continuing until maturity.

Fitch assigned the 2037 bond a BB– rating, the same as Jamaica’s sovereign credit rating.

Apart from the underwriting discount and US$700,000 in expenses connected to the transaction, the Government used part of the proceeds to fund a tender offer through which it partially repurchased some of its 2028, 2036 and 2039 global bonds.

The Government will now have US$590 million, or approximately $92.68 billion, available to support budgetary purposes.

“Less than a year after a storm that caused damage and loss equivalent to more than half of our Gross Domestic Product (GDP), international investors have chosen to lend to Jamaica at a rate that reflects confidence in this country and in the discipline Jamaicans have shown over more than a decade,” Finance Minister Fayval Williams said in a press release.

She added that the confidence had been earned by Jamaican families and businesses through years of difficult fiscal decisions.