Wednesday 11 December, 2019

J’ca to save $2.5b in interest costs after recent bond transaction

Finance Minister Dr Nigel Clarke revealed that the government conducted a ‘Liability Management Transaction’ in the international capital markets on September 4.

Finance Minister Dr Nigel Clarke revealed that the government conducted a ‘Liability Management Transaction’ in the international capital markets on September 4.

Finance Minister, Dr Nigel Clarke, has announced that Jamaica is to realise some $2.5 billion in interest savings annually as well a US$35 million reduction in the country’s debt.

This has resulted from what Clarke said is a "Liability Management Transaction" in the international capital markets on September 4.

It was conducted on behalf of the government by Bank of America Merrill Lynch and Citibank as joint underwriters/arrangers.

A statement from the Ministry of Finance on Friday said the transaction had two components; the issue of an invitation for the purchase of any, or all of the outstanding global bonds due in 2022, 2025 and 2028 for cash - and the issuance of US$ 815.0 million in notes through the reopening of the 7.875 per cent bonds due in 2045.

The transaction which was concluded on September 16 also extended the maturity profile of Jamaica’s external debt.

“Prior to this transaction, 36 per cent of Jamaica’s external debt matured after 10 years; now 46 per cent falls due after 10 years,” the statement said.

“Similarly, prior to the transaction, approximately 1 per cent of Jamaica’s external debt matured after 20 years; now 21 per cent...matures after 20 years,” it added.

It said the combination of the reduction in Jamaica’s annual interest costs of $2.5 billion per year, the reduction in the debt stock of US$35 million and the lengthening of the maturity profile of the country’s external debt “together improve Jamaica’s finances and our credit profile.”

“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 market and that bond was oversubscribed three times,” Clarke said while addressing a media round table on Friday.

“The end result of those series of transactions is that Jamaica is able to reduce its debt stock, Jamaica has been able to reduce its interest bill on an annual basis and Jamaica has lengthened the maturity profile of its external debt, again reducing our risk,” Clarke emphasised.

The finance minister said these are material gains for Jamaica, “And we were able to do this at a time of global uncertainty, which tells us (of) 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 arrangement (with the International Monetary Fund).”

The liability management transaction also saw the issuance of US$ 815.0 million in notes through the reopening of the 7.875 per cent bonds due in 2045.

The September 4, 2019, five-day tender offer was announced targeting the following bonds: the 11.625 per cent due in 2022, the 9.25 per cent due in 2025, the 7.625 per cent due in 2025, and the 6.75 per cent due in 2028.

Total principal outstanding across all four bonds is approximately US$3.083 billion. At the expiration of the Tender Offer on September 10, 2019, holders of an aggregate principal amount of US$966.9 million agreed to sell their bonds back to the GOJ.

The Ministry said the participation rate of 30 per cent is above the international benchmark of 20 per cent for these transactions.

The total cost of the tender was US$1,181.30 million, representing the prevailing market value of those bonds, in addition to the aggregate accrued interest of US$21.33 million payable from the last interest payment date to the date of the tender offer.

The second component of the transaction was executed on September 11, 2019, involving the issuance of new bonds through the reopening of the 7.87 per cent bonds due in 2045. The principal amount raised was US$815.0 million at a yield of 5.80 per cent.

“The offer was oversubscribed three times and was issued at a premium of 27.6 per cent over the related principal amount resulting in a yield of 5.80 per cent.

“Overall, total proceeds raised from the bond issue, therefore, amounted to US$1,048.60 million, including interest income of US$8.56 million,” the Ministry said.

The total principal outstanding on the 7.875 per cent bonds due in 2045 increased from US$1 billion to US$1.815 million.

 

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