By Lavern Clarke, Staff Reporter
DESPITE THE prevailing tight liquidity in the local financial market, the new US-dollar indexed bond issue has earned the Government US$42.46 million, results that central bank governor Derick Latibeaudiere described as "extra-ordinarily good".
The 12 per cent fixed rate instrument, the highest interest rate on offer in two years, was placed on the market last week, as part of the measures announced by Government to stem the slide of the local currency at a time when the Jamaican dollar was averaging $67.22 against its major trading partner.
The uptake was more than US$4 million less than the last 30-month indexed bond in April, notwithstanding the additional 37.5 basis points on the coupon, and shorter term on the tenor or life of the bond, of 21 months.
In Jamaican dollar terms, the April issue raised $2.53 billion, compared to the current $2.44 billion.
"The market was quite tight," Latibeaudiere told Wednesday Business. "In that context, it was pretty good."
It is usual for the Ministry of Finance to set an in-house target on the funds it wants to raise when its "unlimited" debt instruments hit the market, but given the purpose of the issue, none was set this time around, said the central banker.
"All things considered, if they had set a target, I'm sure it would have been exceeded," he added.
The tightness in the Jamaican dollar market was occasioned by uncertainty, which has seen several institutions and individual investors converting and pulling funds from the market recently, said analysts.
The Governor's reading of the take up reflects the feedback of market analysts who, though not as effusive, said the issue had gone "fairly well" despite the short notice period.
Mark Walters, vice-president for treasury operations at Dehring, Bunting and Golding, said by his take, the issue was not far short of the average US$49.46 million that Government has raised on its outstanding indexed bonds.
DEGREE OF IMPACT WAS INSIGNIFICANT
Other sources say that given that the local currency continued to appreciate over the period of the offer, the bond which was placed on the market primarily as a hedge against the prevailing currency risk, was successful. However, at least one trader said the degree of impact was insignificant when matched against the central bank's continued sale of funds into the system and the Prime Minister's assurances.
"I don't know that the bond would have had any new effect, other than what it has done in the past. I wouldn't count it as a significant factor," he said.
The dollar closed Monday at $59.83.
The offer, originally advertised to close last Thursday, was extended to Monday on the request of some financial houses who wanted more time to take up the bonds, given the prevailing liquidity squeeze.
BILLION OF INFLOWS EXPECTED
Last week, just about $1.6 billion of liquidity entered the market. This week, just under $5 billion of inflows are expected according to Jamaica Money Market Brokers figures, but both the Governor and market analysts maintain that there was nothing wrong with the timing of the offer, given its objective.
"It came at a time when there was concern about the movement in the exchange rate," said Walters, adding that the bond offered investors the same protection against the depreciating dollar, that they would have got converting to US currency.
The treasury executive noted further that the pricing of the subscription at $57.56 was about $2.50 above the prevailing weighted average trading rate, and would have added to the bond's attractiveness - notwithstanding that some of that margin will be eroded by the reduced 1.002 conversion factor quoted by the Ministry of Finance.
"It was a significant upfront cap gain," said Walters, "but if you look at the back end in terms of the convertability on a factor of 1.002, this was probably not as attractive as some of the bonds before when the factor was 1.005."
