Tue | Mar 26, 2019

$52-billion payday for bondholders

Published:Wednesday | January 15, 2014 | 12:00 AM
A side view of the Ministry of Finance building in Kingston. - File

The Finance ministry on Monday repaid US$150 million of debt that was issued to the big banks Scotiabank and NCB back in 2012, different sources confirmed.

Well-placed sources say the repayment of the fixed-rate US-dollar bond was financed from multilateral funds received by the Government of Jamaica (GOJ) as budgetary support and that similar sources will be tapped to finance another four bonds due to mature on February 24.

The finance ministry needs another $36 billion to cover those obligations, and while there are no plans to tap the market for capital, its Debt Management Unit (DMU) has not entirely ruled out the option, Wednesday Business was advised.

Within the quarter, GOJ is scheduled to repay $52 billion in total to domestic bondholders, inclusive of Monday's 6.375% USD bond redemption.

Market sources say there is a fair degree of certainty that GOJ will be able to finance the pending repayments, likely from similar sources as the bond repayments to NCB and Scotiabank.

The ministry's DMU has not tapped the market since the National Debt Exchange and no new debt issues are scheduled for the rest of the fiscal year, except for GOJ Treasuries which are auctioned monthly by the central bank.

The Bank of Jamaica, in pursuit of monetary policy goals through control of liquidity, has taken up some of the slack left by the fiscal authority. Last year, the central bank placed 41 special certificates of deposit and other debt instruments for take-up by its primary dealers.

The special instruments were meant to reduce demand pressure on the foreign-exchange market.

Market sources said some of the liquidity from Monday's maturing bond "will remain in the Jamaican market for sure".

Fundraising plans

Plans for fundraising by the finance ministry in the upcoming fiscal year are being formulated, but there is a fair degree of certainty that the DMU will approach the international capital market for investors in a €150-million bond around early fall.

The bond proceeds would be used to finance repayment of a €150-million maturity due on October 27, 2014.

"We might go to the international market ahead of October 27, but conditions would have to be favourable," said a finance ministry source.

Foreign watchers of the Jamaican market are already predicting that the refinancing of the external bond will receive favourable reception, given current signs that Jamaica's finances are on more solid footing and from having passed two IMF tests.

Scotiabank and NCB have not telegraphed where the proceeds from the USD 6.375% bond will be reinvested.

"I can't say what BNS or NCB will do with the proceeds, but they will likely be looking for short-term placements — here or overseas; making US$ denominated loans to local borrowers, and possibly considering bond purchases," said a top executive from one of the large financial conglomerates.

"If some of the funding for that matured loan came from credit lines provided by overseas banks, the funds could be used to pay down those lines," he said.

The BOJ last week placed three new instruments on the market, the first for 2014. Subscriptions close today, January 15.

Two of the offers are for US-dollar instruments with coupons of 4.0% and 5.0% to mature in 2016 and 2018, respectively; the third is a variable-rate JMD instrument to mature in 2015.

BOJ has set no limit on the funds to be raised from the three offers.

business@gleanerjm.com