Feb 2013 Financial News

FinMin pays out J$3b to holdouts - NDX offer extended for outstanding J$22b of bonds

Feb 25, 2013

The Ministry of Finance paid out more than J$3 billion on maturing bonds to creditors who did not participate in the National Debt Exchange at the initial close of the offer.

But Pamella McLaren, head of the Debt Management Unit at the finance ministry, says the holdouts can still participate in the NDX, which has been extended to February 28.

The J$860 billion debt swap got 97 per cent participation up to Thursday, which means that just under J$26 billion worth of bonds were not tendered in the NDX offer.

The Ministry of Finance's target is 100 per cent take-up. According to McLaren, approximately J$22 billion of old notes remain in the hands of investors, after Friday's payout on maturities.

"We will be extending the offer for another week; so next week, we will reopen the offers so those who didn't get to participate will still have a chance to do so," McLaren told Sunday Business.

All transactions, including those done in the extended offer period, will be treated as settled on February 22, 2013.

Lobbied bondholders

McLaren said the Government paid out J$2.2 billion and USD$10 million - amounting to J$3.2b - to bondholders on maturing debt on Friday. Without the debt swap, the ministry would have had to pay out J$89 billion in maturities plus another J$30 million of interest.

For the rest of the J$22 billion of bonds held by "holdouts", McLaren also said the Debt Unit was expecting them to take advantage of the extended offer to swap their bonds.

In 2010, the government had lobbied bondholders to participate in a similar debt swap, called the Jamaica Debt Exchange (JDX) at which time they had received 99 per cent participation. However, the total amount was eventually swapped because the government used the optional redemption feature embedded in the existing bonds to trigger the swaps.

"In 2010, we had a call option in the bond and we exercised that. Although there is a call option in the bonds now we can't exercise those, so the Government is now looking at other options," McLaren said.

All but two GOJ VR bonds are callable immediately; the others are triggered on a schedule extending from 2015 to 2026.

A review of the instruments issued under the JDX in 2010 shows that none of the fixed- rate bonds are callable, which means the Jamaican Government has to honour the obligations outlined in the term sheets right up to the maturity date of the bond.

However, the variable-rate instruments have optional redemption features which can be triggered, giving the Government the option to pay out the principal prior to their maturity dates.

The variable-rate bonds maturing in August 2013 and February 2015 have call features that can be triggered immediately.

The others can be triggered as follows:

February 24, 2015 for the VR 2017;
February 24, 2017 for the VR 2018;
February 24, 2018 for the VR 2020;
February 24, 2020 for the VR 2027; and
February 24, 2026 for the VR 2032.
McLaren said she is still hoping for 100 per cent participation at the end of next week, while reiterating that successful implementation of the NDX was critical to the current discussions with the International Monetary Fund for an Extended Fund Facility.

"The IMF needs the assurance today, now, and we cannot wait on the call options; and that is why the call options would not help," she said.

She explained that if the 100 per cent participation is not realised then the projected 1.25 per cent annual GDP savings on interest expense amount of savings would not be realised either.

"When we launched last week, we told everybody we are looking for a particular amount of savings. The fact that we didn't get the 100 per cent participation means that we wouldn't get the J$17 billion that we want," McLaren said.

"So now the Government would have to do something to make up for the shortfall on the debt side and we need to give the assurance now, not two or three years down the line," she said.


Source:
Marcella Scarlett, Business Reporter
marcella.scarlett@gleanerjm.com
Jamaica Gleaner
Sunday February 24, 2013

http://jamaica-gleaner.com/gleaner/20130224/business/business1.html