UPDATE: Jamaica buys back US$1.2b of foreign debt, new bond oversubscribed

The Jamaican Government paid US$1.2 billion to repurchase a portion of its foreign debt this week, a transaction that is expected to lead to billions of dollars in  savings annually on interest payments.

The take-up of the buyback offer was about a third of the US$3 billion of bonds tendered by the Jamaican government.

Separately, Jamaica floated a new bond – subscriptions for which investment company VM Wealth said totalled US$815 million. Both transactions formed part of a refinancing plan aimed at replacing expensive external bonds with cheaper debt.

The new bond was offered at a lower coupon rate of 7.87 per cent with a yield of some 5.8 per cent and longer maturity period to 2045, according to indicative prospectus from the Government of Jamaica issued on Wednesday, September 11.

Finance Minister Nigel Clarke said he would speak later about the transaction.

Devon Barrett, group chief investment officer for VM Group, said the bond offer received more than US$3 billion of subscriptions, but the Government only took up US$815 million.

Jamaica paid market value of nearly US$1.2 billion for notes from investors that had a par value of just under US$970 million. The premium payout will still represent savings over time for the Government, which wants to get expensive debt with shorter maturities out of the market.

“At the end of the day, we had a reduction of overall debt,” he said, explaining that Jamaica bought back US$970 million in old notes and issued US$815 million of new debt. “So effectively, the Government reduced its debt book by nearly US$155 million,” he said.

The four debt instruments included an 11.6% note due 2022; a 9.25% note due 2025; a 7.6% note due 2025; and a 6.7% note due 2028. Bank of America and Citigroup are the managers for the deal.

Jamaica wanted to get rid of the more expensive debt, but few investors took up the offer to sell the 11.6% notes, while nearly 50 per cent took up the offer to sell the 7.6% notes.

The size of Jamaica’s public debt is at its lowest level in 18 years and now equates to 95.3 per cent of GDP. At one stage, the debt had climbed near 150 per cent of GDP, but shrank under the economic reform programmes worked out with the International Monetary Fund, which included two large debt-restructuring programmes with domestic investors.

Over the last five years, Jamaica’s external debt to GDP remained largely stable, moving from 65 per cent in 2014 to 63.5 per cent in 2018; while the domestic debt to GDP dropped dramatically from 68.5 per cent in 2014 to 37 per cent in 2018.

Jamaica’s foreign debt was estimated at $1.2 trillion in June, amid a total debt stock of $1.97 trillion.

steven.jackson@gleanerjm.com

Clarification: This story has been updated to reflect the debt to GDP ratio as of March 2019, and to clarify that Jamaica paid market value for the bonds.