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Government to re-enter local bond market

Published:Friday | January 22, 2016 | 12:00 AMNeville Graham
Minister of Finance Dr Peter Phillips

With the expected influx of billions of dollars in the market to flow from NDX bond redemptions in February, the Jamaican Government looks set to end its three-year hiatus from the domestic bond market and issue fresh debt instruments to absorb the liquidity.

The new issues will likely be listed on the Jamaica Stock Exchange's bond platform.

More than $60 billion of NDX bonds are due to mature, but the Ministry of Finance is also to pay out an additional $9 billion to $10 million in interest on its portfolio of domestic debt.

Finance Minister Peter Phillips and his central banker, Brian Wynter, have been knocking heads on containing the monetary effects of the maturities.

"There's been quite a bit of discussion and, in some cases, concern about what will happen with this liquidity event," said Phillips.

"Both the Ministry of Finance and Planning and the Bank of Jamaica are actively managing the process and it is expected that the Government of Jamaica will re-enter the domestic market next month to ensure that we do our part to revive the domestic capital market that have been in a state of some dormancy with respect to Government issues."

Debt restructuring

The finance ministry's last major activity in the bond market was the restructuring of the debt in early 2013 as a precondition of the bailout agreement with the IMF.

The ministry now has $853 billion of outstanding bonds, which the upcoming NDX maturities would have cut to just over $790 billion. Another bond valued at about $6 billion is also due to mature in September.

The World Bank's country representative, Galina Sotirova, had suggested that the ministry consider rolling over the bonds.

Phillips, who raised the issue of the upcoming 'liquidity event' on the final day of the JSE Investments & Capital Markets Conference in Kingston, says the payout would provide stimulus to the Jamaican economy, but that he had also taken note of some of the soundings from the market.

"There is already expressed, not only interest in the Government's re-entry but there is great interest in commercial paper, and we will be working together with all stakeholders in the market to ensure that it is not a disruptive event," the finance minister said.

He also announced that government bonds will be listed on the stock exchange to ensure transparency and vibrancy, referring only to pending issues.

The consideration to list the bonds aligns with an already-stated policy of the Simpson Miller administration to utilise the stock market as a tool of divestment of state assets, a strategy Phillips reaffirmed in his speech on Wednesday.

Some GOJ assets approved for privatisation by Cabinet will be divested "we hope, through the stock exchange and the junior market, as the case may be," he said.

Prospects include Wigton Wind Farm Limited, Jamaica Public Service Company and Seprod Limited as well as assets of the Factories Corporation of Jamaica, Petrojam Ethanol, and Things Jamaica.

"I would say to those who will be beneficiaries of the payout to consider the possibility of investing in some of these assets which we intend to bring to market quickly," Phillips said.

Concentration of ownership

One of the criticisms of Jamaica's stock market has been the concentration of ownership of stocks. Now Phillips says Government's planned market floats are meant to broaden access.

"Only when we have the kind of stakeholder economy which embraces larger and larger numbers of the general population will we finally tackle some of the real social justice issues that people feel and be able to spread the benefits of economic growth more widely," he declared.

Meanwhile, the impending March cut-off for the granting of tax breaks for junior listings appears unlikely to get an extension.

Phillips, in response to queries on the issue, said the real focus should be on finding a way to lower rates generally and broaden the base, rather than makeshift, short-term initiatives that are unsustainable over the longer term.

"We've been having discussions with the stock exchange, and I have said that we are committed to encouraging companies, large, medium, and small, to list on the exchange. To that end, we are examining what can be put in place in keeping with our overall efforts on tax reform," the finance minister said.