Gov't launches 20-year bond
Observer Reporter
Friday, December 14, 2001
DAVIES... a most significant achievement for Jamaica
The government is now attempting to borrow an unspecified amount of money in the USA, offering potential investors interest rate of 11.87 per cent per year, via a 20-year bond.
The money -- between US$250 million to US$500 million -- according to banking sources, will be used to fund gaps in the budget, and represents a major escalation in foreign borrowing by the administration.
The bond, a Securities Exchange Commission (SEC) registered instrument, is the first of its kind by the government and is being managed and underwritten by the US finance house, Bear Stearns & Company.
The announcement was made by finance minister, Dr Omar Davies. The amount of the issue was not disclosed, though sources in the securities industry interviewed last night by this newspaper said that more than $250 million -- and up to US$500 million - was being sought.
Davies hailed the launch of the bond as "a most significant achievement for Jamaica", arguing that, having first placed a bond on the capital market in 1997, the country had now graduated to a stage where private investors were willing to purchase 20-year instruments.
Moreover, noted the minister, the bond issue occurred in the face of significant difficulties being faced by other emerging market economies in the private bond market.
One financial analyst yesterday agreed that the bond was a significant development in Jamaica's borrowing, given the tenure, the price, and its approval by the US SEC -- the agency that regulates the American stock and bond markets.
"The coupon of 11.625 per cent is even below the latest 10-year bond (floated in May) which had an 11.75 per cent coupon rate," he said. "In spite of recent events, they still view Jamaica as very strong."
The analyst who spoke on condition of anonymity was referring to the terrorist attacks on the US in September that sparked fears of a global recession, as well as the difficulty being faced by Argentina in servicing its huge debt, the largest in the emerging market.
He also noted that indications were that the bond was taken up primarily by US institutional investors. "Once it has been approved by the SEC, it becomes a better instrument for American investors to buy," he said.
The Ministry of Finance also stressed that the SEC registration would facilitate more efficient trading of the bond, allowing for broadening of the investor base.
The issue also satisfied the objective of the government's debt management strategy to extend the maturity profile of bonds issued in the international capital market.
The ministry said the proceeds of the bond would be used for general budgetary purposes and partly to fund the 2002/2003 budget.
"Accessing these resources will reduce the demand for financing by the government from the domestic market thus assisting in the reduction of interest rates and allowing the private sector access to more resources," the ministry said.
This latest bond follows a 10-year issue in May, which raised US$400 million. That issue initially raised US$275 million but was subsequently reopened due to over-subscription.
The earlier bond should have satisfied the government's international capital financing projections for this fiscal year, usually estimated at US$400 million. However the financing needs of the government had been expected to rise following the September 11 attacks which negatively impacted earnings from the tourism sector. The devastation from the flood rains of early November also required significant government funding for repairs.