On November 3, 2023, the Government of Jamaica (GOJ) issued the first ever Jamaican Dollar (J$) linked international bond in the amount of J$46.6 billion, equivalent to USD 300 million.
The issuance, which was oversubscribed 1.4 times, consists of Senior Unsecured Notes due 2030 which are registered with the Securities Exchange Commission in the United States.
The operation represents the inaugural J$-linked transaction for the Government of Jamaica (“GOJ”) in international capital markets and accomplishes the GOJ’s objective of opening local currency debt issues to international investors.
This will help to effectively reduce the GOJ’s exposure to USD denominated debt as interest and principal payments are linked to the value of the Jamaica dollar.
It should be noted that while the issue is denominated in J$, debt service payments to bondholders will be in USD determined by the average of the prevailing J$ exchange rate over the 10 business days prior to each payment date.
This effectively means that international investors in this bond take on Jamaican Dollar exchange rate risk.
This bond issuance is part of the second phase of a liability management operation, where the proceeds of this Jamaican dollar linked bond were used to buy back outstanding USD-denominated bonds.
The international credit rating agency, Moody’s, published an Issuer’s Comment which stated that the GOJ’s use of the J$ linked Bond issuance proceeds to buy back outstanding USD-denominated bonds will reduce “the government’s exposure to foreign-exchange risk, which is a credit positive”.
Moody’s also stated that “over time, a continued reduction in the government’s exposure to exchange-rate risk would address one of the sovereign’s key credit challenges”.
In the first phase of the transaction, Jamaica issued an invitation for Offers to Tender for Cash, its 7.625% Notes due 2025, 9.250% Notes due 2025, and 6.750% Notes due 2028.
The Invitation commenced on Thursday, October 19, 2023, and expired Friday, October 27, 2023.
The landmark offering achieved several major milestones—it was the:
1. First ever J$-linked transaction by the Government of Jamaica, representing the breaking of a new frontier into successful local currency deals in the international markets;
2. The international investor participation in the J$ link bond was 93.5% of all participants with 6.5% coming from domestic investors.
Globally, this represents the largest participation rate by international investors in a local currency issue during 2023;
3. This J$ link bond represents the lowest coupon and yield for a local currency-linked global bond transaction in 2023 to date;
4. This is the first ever Jamaican buyback of USD debt associated with a J$-linked new issuance, supporting the Government’s effort at de-dollarizing the national debt; and
5. This J$ linked bond issue marks Jamaica’s first return to the international capital markets since 2019.
Minister of Finance and the Public Service, Dr. the Hon. Nigel Clarke, who led a Jamaican delegation on an investor road show in London and New York connected with the issue, said “International bond investors investing in a J$-linked bond, and accepting J$ currency risk, would have been unimaginable only five years ago.
This is an extremely significant transaction that opens new frontiers and offers new possibilities for Jamaica.
The development represents a substantial policy dividend emanating from (i) Jamaica’s substantially improved macro-economic fundamentals and (ii) from the deepening of monetary policy transparency, and the establishment of the pursuit of low, stable and predictable inflation, as the objective of monetary policy, through the law that established central bank independence.
The GOJ’s new ability to tap international investors for local currency linked debt broadens, deepens and diversifies the GOJ’s funding sources while providing the opportunity, over time, of altering the currency mix of the national debt.
This makes Jamaica more robust.
In addition, the greater the proportion of our national debt that is denominated in, or linked to, Jamaican Dollars, the stronger, and more resilient Jamaica will be.
This transaction, therefore, enhances Jamaica’s resilience and paves the way for similar international issues in the future.”
