Keith Collister, Contributor
STEELE
JAMAICA RAISED US$250 million by way of a Global Eurobond with a twenty-year maturity and a 9.25 per cent interest coupon.
The new issue price on the $100 dollar minimum denomination bond was 98.881 which, including the discount, meant that the bond yielded 9.375 per cent at issue. According to sole bookrunner for the deal, leading international investment bank Morgan Stanley, the issue was significantly oversubscribed.
The Government's choice of Morgan Stanley from at least half a dozen international investment banks is interesting, as they had only started research coverage of Jamaica a few months ago with an overweight recommendation.
INVESTMENT BANKING COMPETITORS
One of their investment banking competitors for the Jamaica deal, Bear Stearns head of Emerging Capital Markets, A.J. Mediratta, commented, "We thought it was a good deal. We had also been suggesting the 20-year tenor, so we thought their decision on tenor and pricing was sound. While we know they were also looking at the Euro markets, it was clear that the Euro curve would be tough to push past 10 years and more expensive than dollars on an apples to apples currency basis." Bear Stearns had moved Jamaican debt from an outperform to a marketperform rating last month, due to negative news flow.
In a communication to his customers, Oppenheimer's Greg Fisher, a leading international trader in Jamaican bonds, said "We all know that the Jamaicans are the main component with respect to a successful Jaman 'Jamaican bond' global transaction, and that many of new bond deals end up in local hands anyway. Having said that, we will see a very active secondary market as the Jamaican broker-dealers and banks will be forced to buy in the grey market or in the secondary market."
Commenting for The Gleaner's Wednesday Business, he added : "I thought the deal was well executed. As far as I can tell, not much was placed in Jamaican hands. The deal was free to trade late in the day, so tomorrow's trading will give us a better idea. The question that we need to answer is whether or not most of the U.S. institutions that were allocated bonds by Morgan Stanley are long-term holders, or are they waiting for a strong local bid to surface so they can peel away some of their size? We need to see more trading in order to get a handle on that issue. But it seems to me that the deal was priced correctly within the Jaman curve."
REASON FOR GOV'T'S CHOICE
He believes it is likely that one of the reasons that the Government chose Morgan Stanley is its ongoing effort to place new deals 'away' from local hands, as Morgan Stanley is the bond dealer with the smallest penetration within the local market out of those considered to do the deal.
NCB's local trader, Mark Croskery, believes that because Jamaica's market is significantly locally broker-driven, "Other emerging market issues of similar tenor, e.g., 20 years do not offer a true picture. Utilising the 17's at a yield of 8.91-9.00 yield to maturity captures a truer picture of the trading potential of new issue 2025. Hence we could see it trading as high as 102.00 - 102.50 in a relatively short period of time, and even higher, dependent upon local USD liquidity." Late yesterday afternoon, the 2025 new issue was already being offered at 99.75, a premium of nearly $1 over the issue price.
Economic Policy Committee chairman for the PSOJ, Colin Steele, was positive about the effect of the new issue on our local financial markets. "The new bond issue coupled with the fact that the last quarter of the fiscal year will show a substantial budget surplus and coinciding with the winter tourist season, means that we are likely to have increasing Jamaican and U.S. dollar liquidity. This environment lends itself to further softening in interest rates and stability in the exchange rate."
