Feb 2016 Financial News

Fitch says Jamaica’s debt still very high

Feb 15, 2016

Fitch, the international ratings agency which provides issuer and bond ratings, said Thursday that NDX payments were pre-funded by US$2 billion in Eurobonds raised in July 2015, providing J$45 billion of a J$60.9bn billion (3.6 per cent of GDP) domestic debt maturity in February.

For the payment on restructured NDX bonds on February 11, the J$15 billion difference in outflow was compensated for by the government’s first medium-term domestic debt issue in three years.

Fitch said the re-establishment of market access “will help the government to meet a spike in maturities to 11.6 per cent of GDP in FY2017-2018”. It noted that government debt repayments in the coming financial year 2016-2017 are relatively light at just 3.3 per cent of GDP.

Fitch complained, nevertheless that Government debt/GDP “is still very high at an estimated 124.7 per cent of GDP in March 2016.”

The agency stated, “Fitch’s debt dynamics analysis suggests that public debt including guarantees will stay above 100 per cent of GDP until 2020, even if the primary surplus is maintained at seven per cent of GDP.”

Fitch opined that debt interest payments still consume 27 per cent of revenues, and current spending accounts for more than 90 per cent of the total, squeezing the amount available for investment.

“While Jamaica has avoided imposing punitive losses on bondholders, it has twice re-profiled domestic debt (in 2010 and 2013), which constitutes a default under Fitch’s methodology,” the agency noted.

On July 23rd, 2015, Jamaica raised US$2 billion on the international capital market through the issue of two new Eurobonds.

Three-quarters of this sum, or US$1.5 billion, was used to purchase US$3.2 billion in debt owed to state-owned Venezuelan oil company Petroleos de Venezuela SA (PDVSA) by Jamaica’s PetroCaribe Development Fund (PDF), at 46 US cents on the dollar, or a discount of 54 per cent. The rest was the main source of Thursday’s settlement.

The larger of the two Eurobonds, US$1.35 billion, maturing in 2028, has an interest coupon of 6.75 per cent while the smaller-sized Eurobond of US$650 million matures in 2045, at an interest rate of 7.875 per cent.

For the 2028 bond, principal is to be repaid in three equal tranches in 2026, 2027, and 2028 respectively. The smaller 2045 bond has a single bullet repayment on maturity.

The domestic bond issue on February 11 included a two-year tenor with a maturity date of February 12, 2018 at an interest rate of 6.625 per cent; a six-year tenor with a maturity date of February 11, 2022 at an interest rate of 7.75 per cent; and a 30-year tenor with a maturity date of February 12, 2046 at an interest rate of 11.25 per cent.

Interest will be paid semi-annually on all the bonds. The Ministry of Finance and Planning said the three fixed-rate instruments issued were oversubscribed.

Source:
BY AVIA COLLINDER
collindera@jamaicaobserver.com
Business reporter
Jamaica Observer
Sunday February 14, 2016

http://www.jamaicaobserver.com/business/Fitch-says-Jamaica-s-debt-still-very-high_51575