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NDX bond repayment a factor in US$2b PetroCaribe fundraising

Published:Tuesday | August 11, 2015 | 2:01 PMCamilo Thame
Dr Peter Phillips, Minister of Finance & Planning.

The PetroCaribe Development Fund was supposed to finance a sizeable chunk of the $62-billion National Debt Exchange (NDX) bond which matures next February.

This is one of the reasons the Government is using US dollar debt to pay off the local currency NDX benchmark note, which carries a coupon of 7.5 per cent, or less than the 7.875 per cent interest rate carried by the 30-year, US$650-million ($76-billion) global bond issued two weeks ago.

At the beginning of the fiscal year, the finance ministry had planned to borrow the equivalent of $30 billion from the international capital markets and raise an additional $56 billion domestically.

Instead, it borrowed US$500 million ($59 billion) externally, not including the US$1.5 billion it raised to purchase US$3.25 billion in debt owed to Venezuela through the PetroCaribe Energy Cooperation Agreement.

"A lot of that domestic financing was to come from PetroCaribe," Finance Minister Peter Phillips told Wednesday Business in response to queries posed at a press briefing on Monday. "Outside of PetroCaribe, the market has been affected and has been relatively inelastic due to the NDX."

He added: "This (borrowing from the external market) allows for a more deliberate return to normal market conditions by reducing the reliance on government borrowing and creating a more competitive environment for our domestic financial institutions."

The Government also wanted to ride on high investor interest in Jamaican global bonds to fully fund its budget for the current fiscal year, while insulating its financing against adverse changes in the international capital market.

"The timing of the transactions allowed Jamaica to minimise any impact on funding costs which may arise due to uncertainty linked to the forecasted interest rate increased by the US Federal Reserve later this year, as well as any dislocation caused by the closure of markets in August," Phillips said.

Overall, with the debt buy-back - which represents a near 54 per cent discount on the face value of the debt owed to Caracas - the Government expects to save just under US$300 million in debt service costs associated with PetroCaribe over the next 30 years.

The PetroCaribe Development Fund (PDF), which handles the cash inflows and outflows for the oil-for-debt agreement, will service the bonds as it continues to earn on its remaining assets and receive inflows from the energy accord. Debt servicing would have seen PDF pay over US$125 million - of which US$102 million was principal repayment - to Venezuela's state oil company, PDVSA, this fiscal year.

liabilities to rise

After the buy-back, the agency had just US$50 million in liabilities on its books up to the end of July. This will begin to rise again when the next tranche of oil is purchased from Venezuela. Additionally, a substantial portion of PDF's earning assets were set off against debt owed by the central government.

"Part of our assets would have been redeemed," said PDF head Dr Wesley Hughes. "Loans to the Ministry of Finance and some of our paper (government bonds) would have been redeemed."

The agency was estimated to have had $240 billion in loan receivables on its books as at March 31, according to the latest Estimate of Revenue and Expenditure for Public Bodies. It also had just over $100 billion in long-term investment and $22 billion in repos.

It is not clear how much of the assets will be set off against the debt owed by central government, which purchased the liability owed by the PDF.

Phillips said that discussions over possible asset management operations are currently taking place.

Hughes said that PDF's interest income will be reduced as a result.

"We won't be having that kind of earnings," he said in relation to the projected $13-billion surplus the PDF was expected to realise this fiscal year, after paying out nearly $4 billion in interest to PDVSA.