Apr 2017 Financial News

Government of Jamaica may make new bond offers soon

Apr 28, 2017

With a spike of $64 billion in maturities in May 2017, the Government of Jamaica (GOJ) may soon offer new Jamaican dollar bonds to tap the arising liquidity. The GOJ has domestic debt in the amount of approximately $165 billion falling due between FY2017/18 and FY2018/19.

In February 2016, a $60.4-billion benchmark bond matured. After a three-year absence from local issues, the GOJ re-entered the domestic market, taking advantage of the liquidity generated by the maturity to pre-fund some of the FY2016/17 maturities by issuing a limited amount of $15 billion in new benchmark notes in the domestic market, with short, medium and long tenors.

The Ministry of Finance and Planning (MOFP) outlines in its medium-term debt management strategy paper that — market conditions permitting — the Government plans to issue more fixedrate debt in the domestic bond market to achieve a desired portfolio structure of a 70:30 proportion of fixed and variable- rate debt by end FY2018/19.

Options include refinancing the entire domestic debt in the amount of approximately $165 billion falling due between FY2017/18 and FY2018/19 in the domestic market, through the issuance of 2- ,5-, 10- and 30-year JMD fixed-rate bonds in equal proportion.

The remaining borrowing needs could be covered with International Capital Market (ICM) issuances: such as the 15-year bond amortising in the last three years (for a total of US$800 million to be issued between FY2017/18 and FY2018/19), and the reopening of the 2045 Bond (US$350 million).

Notably, the GOJ should have funds left over from its August 2016 Eurobond issue, in which it raised US$1.2 billion and bought back some US$870.9 million in 2017 and 2019 bond notes.

Limited domestic demand might mean more ICM issuances, but the government aims to exclude strategies that further aggravate exchange rate risk exposure.

MOFP in its strategic analysis says if the domestic market only partially absorbs the domestic maturities (up to $60 billion per year), there might be a resulting increase of ICM issuances up to US$1.5 billion between FY2017/18 and FY2018/19.

However, the aim is to finance all domestic maturities, including maturing US dollar benchmark notes, through the issuance of local currency benchmark notes.

Foreign currency debt is expected to account for between eight and 10.0 per cent of the domestic portfolio in the short term to mitigate FX risk.

The MOFP said that the Government of Jamaica will issue only fixed-rate debt in the external market, linked to interest rate uncertainties.

Source:
BY AVIA COLLINDER
collindera@jamaicaobserver.com
Business reporter
Jamaica Observer
Friday April 28, 2017

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