New incentives for the local bond market
The Ministry of Finance is in the process of revising the treatment of withholding tax on interest payments to bondholders.
Finance Minister Nigel Clarke, who made the disclosure on Wednesday at the launch of the Jamaican office of regional rating agency CariCRIS, noted that the details would be released later, but that bonds listed on the newly created JSE Private Placement Market would benefit.
“It will materially improve price discovery and retail investors will benefit from a lower purchase costs of corporate bonds bought on the platform,” the finance minister said.
The Jamaica Stock Exchange launched the JSE Private Market Platform at the top of this year as a secondary market for the trading of bonds issued on the debt market that are generally classified as exempt distributions and targeted at sophisticated and institutional investors.
So far the platform has received two listings, $7 billion of bonds issued by Guardian Holdings Limited. The corporate bond market is said to value around half of a trillion dollars overall, and is expected to continue expanding as companies seek financing for a reset of their businesses to get over the hump of the pandemic.
While the tax amendment is to come, the Ministry of Finance has otherwise been receptive to long-standing lobby efforts from financial houses to lift restrictions on certain classes of investment.
Effective today, April 30, Clarke said he approved five allowable foreign assets in which intermediaries can invest, including corporate foreign currency debt instruments issued by entities incorporated in Jamaica that are earners of foreign exchange and are rated by credit-rating agencies as investment grade or by CariCRIS as ‘good’; and publicly traded shares that are denominated in major foreign currencies of companies incorporated in Jamaica and are rated by credit-rating agencies as investment grade or by CariCRIS as ‘good’.
The other three span Bank of Jamaica certificates of deposit denominated in foreign currency; Government of Jamaica-guaranteed corporate foreign currency debt instruments; and publicly traded foreign currency shares of companies registered outside of Jamaica, with market capitalisation of US$10 billion or greater.
Reacting immediately to the announcement at the CariCRIS event on Wednesday, President of the Jamaica Securities Dealers Association Steven Gooden said it could be “a real game changer” for Jamaica on the bond market.
“This move will result in natural USD borrowers, particularly those that earn foreign currency such as the tourism and BPO sectors, to benefit from the flexible solutions that the capital markets provide. It is these sectors that have been hit heavily by the pandemic and now they can tap into more flexible solutions to not just survive … but to grow out of the pandemic,” Gooden said.
Meanwhile, regarding the long-awaited listing of GOJ bonds on the stock exchange, Clarke said the JSE, central bank, securities dealers, the Financial Services Commission and his ministry have now agreed on the rules that will govern the listings.
Speaking to the Financial Gleaner, afterwards, Clarke said work is needed on the interface between the Jamaica Stock Exchange fixed income trading platform, and the BOJ’s JamClear central securities depository, which is the registrar for government securities.
He is eyeing March 2022 for the listings.
“The development work will be shortly commissioned and implementation should take place by the end the fiscal year. The entire universe of Jamaican dollar-denominated GOJ securities will then be eligible for trading on the Jamaica Stock Exchange,” the minister said on Thursday.
At the CariCRIS Jamaica launch, he said the listings would both serve to deepen the market and bring transparency to debt pricing.
“The result for the market will be that for the very first time, there is the availability of a transparent Government of Jamaica yield curve against which private-sector bonds can be priced,” said Clarke.
“To get further and to have market deepening and to ensure that private issuances can be appropriately priced and the risk involved can be expressed in the yields demanded by investors, it’s absolutely critical to have a transparent yield curve,” the minister said.
He similarly held up credit ratings as a tool that investors can use to monitor and assure themselves that pension and insurance pools and savings are prudently managed.
“Ratings are therefore not just an abstract concept for sophisticated investors,” he added. “CariCRIS, in establishing an office in Jamaica, is a first mover; and having been an important partner to many existing corporates in Jamaica, is particularly welcome,” he said.
The rating agency run by Wayne Dass has operated for 16 years. The Jamaica office marks its first effort at expanding beyond its home base in Trinidad & Tobago.