Davies admits local investors excluded from euro bond issue

THE EXCLUSION of Jamaican investors from participating in the primary issue of the first Government of Jamaica 10-year euro bond issue earlier this month was deliberate, Minister of Finance and Planning, Dr. Omar Davies, admitted yesterday.

"I hear the complaint and I plead guilty. We threw out in the first instance those bids which were clearly out of Jamaica," Dr. Davies responded to questions raised by backbencher Ronald Thwaites in the House of Representatives.

He said that, in most instances, the domestic bidders simply had to purchase in the secondary market. But, he said, the complaint really wasn't about the exclusion from the first stage of the bond issue, but the fact that the second-round deal was not as good as the first.

Dr. Davies explained: "It is a careless person or careless Government which doesn't learn. Last year September, we had a very successful bond issue in which we got US$225 million.

Turmoil

"It turned out that more than a half of the US$225 million originated right here in Jamaica and the resulting purchase of foreign exchange from the domestic foreign exchange market to finance the purchases of bonds led us into a period of turmoil in the foreign exchange market."

He said this led to a period when the Government had to do, "perhaps the most negative thing in terms of macro economic management in fiscal year 2000/2001."

After selling US$150 million into the market, the Government had to resort to the reversal of the downward interest rate trend in order to stabilise the foreign exchange market.

Dr. Davies was answering questions from Mr. Thwaites after making a statement on the successful conclusion of the bond issue.

He said in addition to the initial US$275 million raised, the Government had raised an additional US$125 million, after reopening the issue on the advice of Bear, Sterns and Company.

The issue was announced, launched and totally over-subscribed within two hours, he said: A sign of growing investor confidence in the country. He said that the additional US$125 million was not immediately needed and would be placed in a special account. However, he said the success of the issue did not signal an end to tight fiscal policy.

Mr. Thwaites also asked the Minister to indicate whether he was aware of the comments that despite an improvement on previous issues, this issue was reopened at a price higher than what the market might have been willing to pay and, indicate the likely impact on the usual difficult season, July-September, of the additional flow of funds which the issue had generated?

Responding to the assertion the bond could have been priced at a lower interest rate, Dr. Davies said:

"I invite anybody with resources they are willing to lend to us at lower interest rates to make the announcement. I am here. If these sums are here and the origins can stand up to close scrutiny, we are here."

Dr. Davies also criticised local investors for failing to invest their funds in production rather than in the safety of Government bonds.

"Glencore has purchased Alcan holdings for US$175 million. It is to my certain knowledge that more than US$175 million was available from Jamaica to purchase the bonds, and the question we must pose, and I am not posing it in any sort of condemnatory way.

"The question we must pose is, if people have confidence that a government will repay its debt and service the bonds, how is it therefore, that Glencore would have the confidence to put US$175 million to purchase the extensive holdings of Alcan, while our own investors prefer to retain the security of Government paper?"

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