Jul 2015 Financial News

Ja raises US$2 billion. Majority proceeds from Eurobond to pay down PetroCaribe debt

Jul 24, 2015

Jamaica yesterday raised a mammoth US$2 billion on the international capital market through the issue of two new Eurobonds.

The larger of the two Eurobonds, maturing in 2028, has an interest coupon of 6.75 per cent, for a total value of US$1.35 billion, whilst the smaller-sized Eurobond, maturing in 2045, at an interest rate of 7.875 per cent, makes up the balance of the huge issue at US$650 million.

The interest coupon of 6.75 per cent for the 2028 bond compares very favourably with the US$800-million 10-year Eurobond Jamaica raised last year July at a then new interest rate low for a new issue of 7.625 per cent. This was also Jamaica's largest ever international bond deal at that time.

While the final maturity of the main issue is in 2028, the principal is actually to be repaid in three equal tranches in 2026, 2027, and 2028 respectively, effectively spreading out the repayment burden. In contrast, the second smaller 30-year issue maturing in 2045 has just a single "bullet" repayment on maturity.

The use of proceeds from the bonds is to purchase Jamaica's just under US$3 billion in PetroCaribe debt owed to State-owned Venezuelan oil company Petroleos de Venezuela SA (PDVSA) for US$1.5 billion, or a discount of just under 50 per cent. The remaining funds will be allocated for what the prospectus describes as general budgetary financing.

Commenting on the deal, Jamaican Sean Newman, an emerging market investor based at the giant Invesco fund group, described it as "A success all around. They got (more than) their target in terms of money raised, at a lower price than their last deal."

According to market sources, the Jamaica transaction was originally considered at the same time as the larger Dominican Republic PetroCaribe debt buy-back earlier this year, but the two transactions were not able to be finalised together.

The offer was brought to the market by Citibank, and Bank of America Merrill Lynch.

Jamaica's new deal appears to have been "priced to sell", and should be attractive to both international investors and local market players here, the latter having exhibited a clear preference for US dollar denominated bonds over the last few years.

The 2028 repayment date is an additional three years longer than Jamaica's two existing 10-year bonds (their remaining life to maturity), for which investors may be able to pick up another 75 basis points (one basis point is one hundredth of one per cent) in additional yield above the rough average for the two existing bonds of around six per cent.

The coupon for the new 30-year bond maturing in 2045, at 7.875 per cent, is roughly one per cent above Jamaica's two similar "long bonds" maturing in 2036 and 2039.

The amount raised is double the island's rumoured minimum target of US$1 billion, and the rate is below the top end of the interest rate guidance given to investors, which, for the bonds due 2028, was as much as seven per cent and for the bonds due 2045 about 8.25 per cent.

The country could have issued up to US$3 billion, according to its filing with the US Securities and Exchange Commission (SEC), and had orders for US$4.5 billion, or two and one quarter times the US$2-billion they took up.

The debt buy-back, coupled with the repayment of existing maturities, is projected to reduce Jamaica's debt-to-GDP ratio to 123 per cent from 137 per cent by the end of the fiscal year in March. The additional US$500 million means that Jamaica's budget is now fully funded, including, particularly, the February 2016 National Debt Exchange maturity.

The deal also appears to give the existing PetroCaribe fund some welcome investment flexibility, as it essentially cancels half its liabilities.

Source:
BY KEITH COLLISTER Observer writer
Jamaica Observer
Friday July 24, 2015

http://www.jamaicaobserver.com/news/Ja-raises-US-2-billion_19220351