LOCAL MONEY managers and traders are waiting anxiously to see if the latest move by Finance Minister Dr. Omar Davies to raise fresh cash overseas will lead to turmoil in the local foreign exchange markets.
Ministry of Finance advisers were this week cautioning local traders against gobbling up the proposed debt issue, which appears set to raise a minimum of Euro 100 million in the international capital markets over the next few days.
Indications are that the issue will be handled by lead bank Deutsche Banc Alex Brown and will offer an effective yield of around 10.5 to 11 per cent.
It is also anticipated that the Finance Minister could try and raise as much as US$200 million to help finance the gap in his Budget set out in April.
"I'm waiting to see if local players prefer to move into the Euro" said one leading money manager this week.
Several dealers pointed to the $6 billion of Government debt instruments maturing on the local market over the next few days and said it would be a test of current market thinking.
"I suspect people paid out on Thursday as Government debt matures will look to the fixed rate debenture closing on Friday at 21 per cent rather than hold off for the Euro issue," according to another dealer.
Several pointed to the fact that the local currency has been relatively stable although news of a proposed Euro bond issue is widely available. Usually in the run up to a bond issue, investors keen to buy the international issue chase US dollars in the local market.
The last foray into the overseas markets in August saw Dr. Davies raise a total of US$225 million in the second quarter of the fiscal year.
But much of the issue ended up on the local market as dealers acquired it in the secondary market.
That led to pressure on the exchange rate as people scrambled to buy US dollars, which ultimately led the Bank of Jamaica to increase interest rates to around 21 per cent to help stabilise the market.
Early last year, Dr. Davies successfully raised Euro 100 million (US$97.3 million) at an effective yield to purchasers at 11.75 per cent. The bond issue was set at an interest rate of 10 per cent with the Government opting for a three-year maturity date of February 2003 on the new debt.
