US embassy cable - 05KINGSTON1405

UNCLAS KINGSTON 001405 
 
SIPDIS 
 
STATE FOR WHA/CAR/ (WBENT), WHA/EPSC (JSLATTERY) 
 
SANTO DOMINGO FOR FCS AND FAS 
 
TREASURY FOR L LAMONICA 
 
E.O. 12958:  NA 
TAGS: ECON, EFIN, JM 
SUBJECT: GOJ ISSUES NEW GLOBAL BOND 
 
 
1.  The GOJ issued a ten-year eurobond amounting to USD 
300 million with a coupon of nine percent per year on May 
25.  This has given the GOJ 60 percent of the USD 500 
million it expected to raise on the external capital 
market this fiscal year.  The bond for which Bear Stearns 
was the lead broker initially sought to raise USD 200 
million, but had to be increased to satisfy demand.  The 
nine percent purchase price was also the lowest rate at 
which Jamaica has raised funds on the international 
capital market, as other bond rates range from 10.5 to 
12.75 percent.  These conditions, combined with the fact 
that most of the offer was taken up by first time 
subscribers to Jamaica's debt, is a clear indication of 
increasing confidence in the country's macro-economic 
program. 
 
2.  The placement took place against the background of a 
B1e and B rating by Moody's and Standard and Poors, 
meaning that the bond is below investment grade, but the 
issuer currently has the ability to meet its financial 
obligations, although adverse conditions could impair 
ability and willingness to pay.  The less than favorable 
rating was balanced by Jamaica's impeccable payment 
record, as the country has never defaulted on its debt, 
which has the first call on revenues.  The GOJ's intention 
to balance the budget in 2005/06 and the country's recent 
economic performance would have also stimulated investor 
confidence. 
 
3.  The successful placement will allow the GOJ to reduce 
its presence in the domestic market, with Ministry of 
Finance (MOF) officials already signaling their intention 
to hold back on incurring debt the MOF planned to source 
locally to make it easier for the Bank of Jamaica (BOJ) to 
reduce interest rates.  Not surprisingly, the BOJ 
responded immediately by cutting the interest rates 
applicable to all its open market instruments.  The 
reductions range from 0.4 percent on short-term 
instruments to 0.9 percent at the longer end.  The bank 
said that, in addition to the endorsement from 
international investors, the rate adjustment reflected the 
steady improvement in Jamaica's economic environment as 
demonstrated by buoyant exchange flows, stable money and 
foreign exchange markets and increasing reserves. 
 
ROBINSON