3rd November 2023
The Jamaican government is preparing to raise new debt in the international market to retire existing global bonds totalling US$1.76bn.
The bonds earmarked include three specific notes maturing over the next five years, with bondholders set to have the option to cash out their bonds.
This includes two notes with a maturity date in 2025, one totalling US$254mn and carrying an interest rate of 7.625%, and the other note amounting to US$85.2mn with a 9.25% interest rate.
The third note, scheduled to mature in 2028, has an outstanding balance of US$1.42bn and bears an interest rate of 6.75%.
The buyback offer was to conclude on 27 October, with the settlement expected to occur on 2 November 2023.
The sum accounts for roughly 13% of Jamaica’s overall debt, which amounted to US$13.8bn (JM$2.15tn) in July 2023. This US$1.76bn in bonds corresponds to approximately 21% of the foreign debt stock of the country.
While the government has not disclosed exactly how much Jamaica is looking to raise from the new bond offering, the Ministry of Finance did indicate that the new bonds will be listed in Europe on the Euro MTF Market of the Luxembourg Stock Exchange.
Citigroup will act as global coordinator in addition to being joint lead managers and joint bookrunners with BofA Securities. Deutsche Bank Luxembourg will serve as the designated paying agent for Luxembourg.
“As described in the ‘use of proceeds’ some of the net proceeds of this offering are intended to be used to fund Jamaica’s purchase of certain outstanding notes of Jamaica,” read part of the prospectus issued by the Ministry.
This initiative is part of a strategic effort to systematically reduce the country’s debt load by replacing older bonds with what is hoped to be more cost-effective issuances following two recent credit rating upgrades. In September, S&P Global elevated Jamaica’s debt rating from ‘B+’ to ‘BB-‘ and maintained a “stable” outlook. Just one month later in October, Moody’s rating agency boosted Jamaica’s rating from ‘B2’ to ‘B1’ and changed the outlook from “stable” to “positive.”
Despite these upgrades, there remains uncertainty about what interest rate the new bond offerings will attract.
While the Finance Ministry’s prospectus highlighted the updated credit ratings as a reflection of Jamaica’s creditworthiness and its ability to make timely payments on long-term bonds, it included the caveat that, as per a standard indemnity clause, these ratings may fluctuate in the future, potentially influencing the trading price of Jamaican debt securities, including the mentioned notes.
“Jamaica’s credit ratings may not improve and they may adversely affect the trading price of Jamaica’s debt securities including the notes, which could potentially affect Jamaica’s cost of funds in the international capital markets and the liquidity of, and demand for Jamaica’s debt securities,” stated the document.
Moreover, the prospectus stipulated that the ongoing Russia-Ukraine conflict might exert a notable adverse impact on Jamaica’s economy and its ability to secure external debt funding in the future.
Caveats notwithstanding, several market players including NCB Capital Markets (NCBCM) have expressed optimism about the move and the country’s recent economic performance.
“Jamaica’s commitment to fiscal consolidation, debt management, and economic growth, have put it on a positive path for the future, as captured by the recent credit upgrades… The efforts at keeping debt sustainable are also reflected in the refinancing of USD-denominated debt with local currency debt and maturity extension that is underway, if rendered successful,” said a recent NCBCM article titled ‘Jamaica’s Fiscal Discipline Paying Dividends’.
The financial firm emphasised that the continued push to reduce debt to the target of 60% of GDP and reduce the interest burden should provide the Jamaican Government with the fiscal space to invest more in infrastructure and public services.
One of the country’s last significant efforts to refinance its debt came in September 2019, when the Andrew Holness Administration moved to replace US$3bn in sovereign bonds.
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