IN RECENT weeks, a number of local companies have disclosed several initiatives to raise funds in overseas financial markets. More specifically, NCB signed a US$30-million amortised loan facility with the International Finance Corporation (IFC) - the private arm of the World Bank that funds private sector initiatives. Next, Caribbean Cement Ltd announced that it had successfully negotiated US$105-million funding from the IFC.
Not to be outdone, the Digicel group revealed that it had issued a corporate bond, courtesy of the international firm J.P. Morgan. The bond raised US$300 million and was over-subscribed by 10 times. Taken together, these are positive developments as they show how the international financial market can be tapped to help local companies to raise capital for expansion and increase international competitiveness. Additionally, these initiatives are significant as they signal a break in the plethora of domestic money market activities that have been mainly dominated by Government of Jamaica paper. Further, they show a proclivity on the part of local companies to move away from high-cost domestic commercial bank financing. Using overseas funding lessens the demand pressures on local lenders.
An additional significant point about these latest financing moves is that the push factor for these initiatives is linked to the Caribbean Single Market and Economy (CSME). This is so as the above-mentioned companies have made it clear that the newly acquired funds will be used to strengthen their regional presence.
This marks an interesting new juncture for the Jamaican private sector as all of the three companies mentioned are foreign-owned. We therefore have a situation where foreign-owned Jamaican companies are using foreign capital to strengthen their operations and expand overseas.
It also underlines the point that those in the local private sector with the scope of operations and the will to do so, can find capital at a cost which allows them to be internationally competitive.
But whatever may be the stimulant for these latest creative financing initiatives, should the local Stock Exchange reap increased success in its strategies to get more local companies to list on the exchange, local companies would have an even wider range of options in designing their financing strategies.
In the meantime more local companies should feel emboldened to pursue similar financing initiatives. This could prove to be a turning point for private sector funding - a much-needed positive development.
THE OPINIONS ON THIS PAGE, EXCEPT FOR THE ABOVE, DO NOT NECESSARILY REFLECT THE VIEWS OF THE GLEANER.
