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Clarke: Debt buyback to save Jamaica US$18m annually

Published:Sunday | September 22, 2019 | 12:33 AMMcPherse Thompson - Assistant Editor-Business
Minister of Finance Dr Nigel Clarke.
Minister of Finance Dr Nigel Clarke.

The Jamaican Government’s repurchase of a portion of its external debt last week will result in annual interest savings of about US$18 million, or just over $2.5 billion, Finance Minister Dr Nigel Clarke said on Friday.

The transactions, in which Jamaica tendered for four classes of bonds, have also reduced the external debt stock by approximately US$35 million, he said.

The four debt instruments were an 11.6 per cent note due in 2022; a 9.25 per cent note due in 2025; a 7.6 per cent note due in 2025; and a 6.7 per cent note due in 2028, according to a report in the Financial Gleaner on September 13.

Jamaica paid market value of nearly US$1.2 billion for notes that had a par value of just under US$970 million, but the payout was still expected to result in savings over time for the government, which wants to get expensive debt with shorter maturities out of the market.

“In those tenders, we offered the market price for those bonds. In one of them we paid US$0.50 over the market price, another we paid US$1 over the market price, but the other two were at the prevailing market price,” said Clarke at a media briefing post Jamaica’s exit from its IMF programme.

“Simultaneously, we reopened the 2045 bonds, and we eventually took up US$815 million in nominal value, but we issued at a 27 per cent premium, so we took in 27 per cent more than US$815 million,” the Minister said.

“In this period of uncertainty, Jamaica was able to issue a bond with nearly 30 years of tenure. That bond was issued at a yield of 5.8 per cent in the international markets, and it was oversubscribed three times,” he added.

Prior to the transactions, 36 per cent of Jamaica’s external debt was due to mature after 10 years, but that has now shifted to 46 per cent of foreign debt maturing after 10 years, the finance minister said.

“Clearly, the longer the maturity profile of your foreign debt, the less risk that you are carrying because you have more time to repay. In addition, prior to this transaction, Jamaica had approximately 11.7 per cent of its foreign debt being due after 20 years. After this transaction, we almost doubled the amount of our debt due after 20 years to 21 per cent,” said Clarke.

“Those are material gains for Jamaica. And we are able to do this at a time of global uncertainty, which tells you the confidence that the international investing community has in Jamaica and in Jamaica’s future prospects and the recognition that is being given to the substantial amount of progress that Jamaica has made under the precautionary standby agreement with the IMF,” the minister added.

On the issue about claims of lack of transparency surrounding the debt buyback, Clarke said “that is a very unfortunate mischaracterisation.”

“Liability management operations are very, very sensitive operations. There can’t be any prior disclosures before the operations are launched and during the period of the operation, and they are handled by our investment banks, who we sign contracts with,” he said.

“It is highly inappropriate for the Ministry of Finance to be talking about those transactions until all of the results are in. The conversations that are being had are conversations directly with the persons who hold the bonds. And when all of that is done, the information is released.”