GOJ ISSUES NEW GLOBAL BOND

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