Interaction of the Debt Management Office in Jamaica with the International Capital Markets

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Interaction of the Debt Management Office in
Jamaica with the International Capital Markets

• 4th Annual Meeting of Latin American the
  Caribbean Public Debt Management Specialists
• Port of Spain, Trinidad Tobago
• May 14-16, 2008
• Dian Black
• Ministry of Finance and the Public Service
• Kingston, Jamaica

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Contents

• Introduction
• External Financing Execution Strategy
• Composition of External Creditors
• Relationship with External Players in the
  International Capital Markets (ICM)

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Introduction

• Government of Jamaicas medium term borrowing
  programme guided by medium term Debt Management
  Strategy
• Debt Management objective
• To raise adequate levels of financing on behalf
  of the Government of Jamaica at minimum costs, to
  develop and implement strategies to ensure the
  long-term sustainability of the public debt while
  maintaining risk at an acceptable level.

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Introduction

• Key objectives of the Debt Strategy
• Foster a more interactive relationship with the
  local and international markets
• Extend and smooth the maturity profile of the
  debt to better manage refinancing risk
• Increase the transparency and predictability of
  debt issuance and operations
• Address aspects of liability management

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Introduction

• Jamaicas total debt J 1,000,676.5mn of which
  -
• Domestic debt J 562,108.1mn ,
• External debt J438,568.4mn
• Total Debt/ GDP 126.1

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External Financing

• Jamaica entered International Capital Markets
  (ICM) in 1997
• Reasons for entering
• Increased domestic interest rates resulting in
  high levels of domestic debt servicing costs
• Advantage of lower external interest rates which
  would facilitate lowering of domestic interest
  rates
• Exit from commercial bank restructuring in 1990
• Graduation from Paris club bilateral rescheduling
  in 1995 no longer a heavily indebted country

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Execution Strategy

• Objective
• to access the ICM to the extent of gross
  external amortisation of the external debt
• to maintain good external debt indicators
• Use of external advisory service
• external financial advisors provide valuable
  information
• monitor developments in the markets
• interface with investment houses to harness
  market intelligence
• Foster relationship with investors
• External Legal Counsel
• Selection based on range of services to be
  provided
• lowest all-in costs for handling transaction

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Execution Strategy

• Timing
• Monitor market developments with the assistance
  of the financial advisors to determine
  appropriate time for entry
• Schedule issues to coincide with maturities
• Interest of Investment house to go to market
• Lead Manager
• Determination based on Request for Proposals
  (RFP)
• RFP sent to financial institutions sometimes
  receive unsolicited RFP

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Execution Strategy

• Short listing based on the following criteria
• Low cost financing
• Risk minimization
• Diversification of investor base
• Extension of maturity profile
• Selection of Lead Manager based on
• Terms being offered tenor, currency
• Lowest all in cost competitiveness of process
  helps to keep fees and expenses low
• Country coverage by financial institution
• Support from secondary market

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Execution Strategy

• Structure and Type of Bonds
• Decision based on
• ? Market conditions
• Tenor based on portfolio needs, must be
  consistent with debt strategy objective of
  extending maturity profile of the debt
• Ease of execution
• Investors interest
• Currency US usually first choice, - volatile
  although hedging opportunities exist, exchange
  rate risk implications
• Size based on annual borrowing requirement as
  well as investors preference institutional
  investors prefer liquid instruments while retail
  investors prefer smaller issues

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Execution Strategy

• Marketing
• Meetings with investment banks to promote
  Jamaicas credit story
• Develop relationship with banks and investment
  community
• Road shows major European and North American
  cities
• Usually held at the time of issuance, also
  non-deal
• Conference calls
• Presentations to investors by lead managers
• Publication of research articles by lead managers

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Execution Strategy

• Distribution
• Geographic distribution initially investors
  dominated from USA and Europe broadened to
  include Latin America, Caribbean and Gulf states
• Mainly Institutional investors Insurance
  companies, Pension funds, Mutual funds, Hedge
  funds, Banks, Money managers
• Initially comprised of mainly retail investors

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Execution Strategy

• Documentation
• Offering Circular/ Prospectus
• Comprised of historical and financial data
  ,legal, regulatory and taxation systems,
  political structure, relationship with the
  international investment community ,features of
  bonds, clearance and settlement and payment
  systems
• Underwriting Agreement
• Fiscal Agency Agreement
• Purchase Agreement
• Global Note
• Initial Phase Bonds issued under Regulation
  S/144A under the US Securities Act which allow
  for sale offshore and to qualified institutional
  buyers in the USA
• Since December 1991 US bonds issued under
  Schedule B Registration Statement with the US SEC
• February 2002 issued under Shelf Registration
  Programme

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Execution Strategy

• Shelf Registration facilitates registration of
  securities intended for future issuance
• Benefits of Shelf Registration
• Greater flexibility
• Ability to access international capital markets
  at very short notice
• Ability to take advantage of favourable market
  conditions

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Composition of External CreditorsMarch 2008
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Relationship with External Players

• External Creditors
• Multilaterals Bilaterals
• Loans from Multilaterals Bilaterals for project
  Financing
• Commercial Banks
• also supply loans mainly for suppliers credit
• Investors
• Invest in Eurobonds
• Conference calls
• Roadshows
• Provide information on web-site

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Relationship with External Players

• Lead Managers
• Provide market intelligence on an ongoing basis
• Structure Bond issues
• Provide Pricing indication for new issues
• Propose appropriate marketing distribution
  strategy
• Arrange Investor roadshow
• Provide coverage on Jamaicas credit story

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Relationship with External Players

• Rating Agencies
• Annual/quarterly review
• On going dialogue
• Quarterly conference calls

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Questions?