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IMF wanted 25% haircut on debt, says Byles; NDX seen as lesser of two evils

Published:Sunday | February 17, 2013 | 12:00 AM
Sagicor Life President and CEO Richard Byles.

Steven Jackson, Business Reporter

Big bank Scotia Group Jamaica and top insurer Sagicor Life Jamaica have separately announced an acceptance of the Government's debt exchange in order to effectively avoid what one called an IMF-imposed haircut.

"The Board of Scotia Group Jamaica has reviewed the offer and is of the view that a successful transaction, as part of the wider economic programme of the Government underpinned by the IMF agreement, is in the best interest of our shareholders and other stakeholders," said Scotia Group President and CEO Bruce Bowen in response to Sunday Business queries.

The Government launched the National Debt Exchange (NDX) in an effort to lower the payouts to its local-based debtors by J$17 billion annually.

Institutions and individuals that accept the NDX will receive lower yields on government bonds going forward. It represents a second hit to domestic investors in three years when the forerunner, JDX, sliced an average six percentage points off coupon rates.

Then financial institutions accepted the JDX out of a sense of nationalism. This time around, they are more reluctant but have agreed to play ball because the alternative might have been more costly.

The NDX agreement is seen as more attractive to what would have been a IMF-imposed haircut of 25 per cent on all bonds, said Sagicor Life President and CEO Richard Byles at a Sagicor Breakfast Forum on Friday at Terra Nova Hotel in New Kingston. It would have slashed debt to GDP from 140 to 110 per cent, he added.

"The haircut would have led to Sagicor writing off J$8 billion, not to mention the other financial institutions," Byles said.

The IMF-relented on that option some three weeks ago for the ameliorated NDX.

"Confidence would have been short-lived and Government would have had to pump money into these institutions and then they would be run by Government," Byles said.

Discussing with government

Sagicor is one of the four largest creditors to the Jamaican Government. The four largest represent some 50 per cent of all debt owed by GOJ, Byles revealed.

"So as a major creditor, along with others, we have been very engaged discussing with Government where this IMF agreement is going and in particular the debt exchange aspect of it," said Byles.

Another large holder of government bonds National Commercial Bank Jamaica reserved comment.

"We are unable to comment just now. This as we are still engaged in the relevant reviews and await the requisite internal approvals on suggested actions. Thereafter we will be in a position to comment after Monday, February 18, said NCB spokesperson Belinda Williams.

The NDX is a precondition for the Government to receive "US$400 million from an IMF loan and additional US$400 million from
multilaterals", said Byles.

Non-acceptance would place
the IMF loan agreement in jeopardy added Sagicor Bank managing director
Philip Armstrong at Friday's breakfast forum.

"We are
a public company and unless I am making a statement to all Jamaica, I
cannot say anything too specific. That $17 billion that the Government
is going to save. Somebody has to pay it and so all bondholders will
have to share up that $17 billion. So we are going to shoulder our fair
share of that hit. It's not an insignificant hit, it's a substantial
hit, but our capital is strong and large and we will be able to absorb
it and move on," said Byles.

"We will be publishing
our results in about two weeks' time. Those results will be acceptable
and will reflect some of the hit of the NDX but there is more to come in
the following year because interest rates are down. But I can pretty
much say Sagicor will survive easily. We will be very strong and we will
emerge as successful as it has been in the past," Byles said, alluding
to JDX in 2010.

In the quarter following the JDX,
associated company Pan Caribbean Bank now Sagicor Bank reported a 38 per
cent reduction in profit arising from reduced margins on government

NDX, which will restructure J$860 billion of
bond debt, is already being referred to alternatively as JDX2. The offer
closes this week on February 21 and will be settled on February

The initial debt exchange restructured J$702
billion of debt in 2010, with 99 per cent participation from holders of