Keith Collister, Gleaner Writer 
JPS building on Knutsford Boulevard. - Ricardo Makyn/Staff Photographer
THE JAMAICA Public Service (JPS) company has successfully raised US$180 million (J$1.2 billion) through an unsecured international bond issue with a maturity of 10 years and an 11 per cent annual coupon paid twice per year.
The new financing replaced approximately US$168 million of higher-cost financing spread between four different maturities, and will reduce JPS's cost of capital by approximately one per cent overall. Critically, it also provides for complete flexibility to finance and structure an expansion project as an independent power producer with a
private power agreement on JPS's
balance sheet.
POSITIVE IMPACT
JPS's regulatory approved cost of debt is 12.56 per cent, which is a cost factored into the current electricity rates. Because the bond offering lowers JPS's cost of debt capital, this should positively impact JPS's next rate filing due in 2009, thereby reducing the cost of electricity. According to JPS's Senior Vice President and Chief Financial Officer Steven Gillis, the offering would bring JPS's debt to equity ratio to about 40/60, and he would prefer a ratio of 50/50, which would further lower the overall cost of capital.
The company made the announcement last Friday at a press conference at its head office on Knutsford Boulevard in New Kingston, following a recent disclosure that the company had increased its electricity generation capacity by 32 per cent at a reduced cost with the Jamaica energy partner's new power barge. The Doctor Bird 2 is expected to lower JPS's fuel bill by about 20 per cent.
The successful bond issue was structured
as a private placement under the U.S.'s rule 144 A exemption by JPS's sole book runner for the issue, the giant international investment bank Credit Suisse, who provided JPS's entry into the international capital markets. In JPS's view, the issue signals both strong support by U.S. and Caribbean investors for the management policies and financial performance of JPS, as well as Jamaica as a whole considering the challenging environment for emerging markets during their road show to sell the debt.
According to JPS's Senior Vice President and Chief Financial Officer Steven Gillis, less than 10 per cent of the money was raised in the Caribbean, with the majority being raised from U.S. institutional investors.
The biggest concern of U.S. institutional investors was JPS's system losses of 21-22 per cent, which are only exceeded by Brazil and Columbia in the region. Because the investors are primarily outside of Jamaica, this should mean less pressure on Jamaica's exchange rate than if the money had been raised mainly locally.
PUBLIC OFFERING
The regional co-manager for the issue was NCB capital markets. Mr. Gillis added that now that this issue was over, JPS would start working on JPS's initial public offering for the 20 per cent of the shares owned by the Jamaican Government.
The issue clearly widens JPS's investor base by allowing it to tap into a broader liquid market, helping to lower JPS's borrowing costs and improve its debt profile, as well as allowing it to raise new debt more easily from a much broader investor base. JPS believes this issue by a local majority privately owned Jamaican company may pave the way for other Jamaican companies to access the U.S. and overseas capital markets in the future.
