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Jamaica in 'default'

Published:Sunday | January 17, 2010 | 12:00 AM

Finance Minister Audley Shaw holds up a copy of offer document. -
Ricardo Makyn/ Staff Photographer

The international ratings agencies followed through to place Jamaica in default on announcement of the $700 billion debt-exchange programme, JDX, that is recalling 350 domestic bonds.

Finance Minister Audley Shaw, reacting immediately, said Jamaica remains current and in full compliance with the terms of all local and international debt obligations.

Standard and Poor's has cut ratings on Jamaica's local currency debt to 'C' from 'CCC' to reflect a "selective default", but has maintained the 'CCC' rating on the foreign debt, which was not affected by the bond call.

Government bonds included in the debt-exchange proposal were also given a revised rating of 'D', while those securities that do not form a part of the initiative remained at the current rating of 'CCC'.

negative outlook

Fitch gave Jamaica's long-term local currency rating a 'C', down from 'CCC', but confirmed Jamaica's long-term and short-term foreign-currency ratings at 'CCC' and 'C', respectively, while maintaining a negative outlook.

The agency says it views the JDX as "coercive" and put Jamaica in "restricted default".

Moody's, however, having pronounced that the JDX was "an event of default", says its ratings would normally be assigned to reflect the size of expected losses to creditors - information it does not currently have.

"Once there is more clarity on investor losses, Moody's will likely make a technical adjustment to the rating in the near future," the agency said in a statement.

The rating agency last assigned a grade of Caa1 to Jamaica, in anticipation of a default.

If investors were to recover 80-90 per cent of value, the rating would fall to Caa2; recovery of 65-80 per cent of value - Caa3; at 35 per cent to 65 per cent - Ca; and at less than 35 per cent, it would be C.

But Moody's also said Jamaica's rating "could be upgraded once the debt

exchange is completed", but only if the programme proceeds as expected and multilateral financing is secured.

Regional agency CariCRIS has also placed the Jamaican corporates on its list under watch, chief executive officer Wayne Dass said Friday.

The JDX will issue 24 bonds to replace those recalled at cheaper rates averaging 12 per cent on JMD issues, and 7.0 per cent on USD bonds.

CariCRIS said the offer, which opens Monday and closes January 26, is likely to have varying degrees of impact on the profitability, capitalisation, asset quality and asset values of financial institutions on its ratings schedule.

Those companies are National Commercial Bank Jamaica Limited, its subsidiary NCB Capital Markets Limited, Sagicor Life Jamaica Limited, and its subsidiary Pan Caribbean Financial Services Limited.

The downgrades were not unexpected.

"Rating agencies could possibly further downgrade our bonds because by their very nature, they react unfavourably to any change in the terms of those bonds, even if they are voluntarily executed. That may be the price we must pay to do what we must do," said Prime Minister Bruce Golding Wednesday night on the eve of his launching of the offer.

For the offer to be successful, Government needs at least 90 per cent participation from bondholders.

In an update on the macro-economy Friday, Stocks and Securities Limited said most institutional holders of GOJ debt were likely to participate in the offer.

The domestic debt exchange forms an integral part of a fiscal reform programme developed in conjunction with the International Monetary Fund.

A US$1.25 billion standby facility is riding on its success.