Jamaica Preps Exchange Offer

Jamaica is set to announce today details of a domestic debt exchange offer that aim to lower its interest payments by JMD40bn ($450m) in the next fiscal year. The offer should launch Thursday, the government says, and will be structured as a 1-for-1 exchange with no haircut. “The government is obligated to repay every dollar of the principal borrowed,” says the Jamaican government in a statement. Full details are due Wednesday on the transaction, which the debtor says is essential to securing a $1.3bn IMF stand-by. “The program is aimed at bringing into a sustainable range, the amount of government resources devoted to servicing local debt, and reducing the debt in a manner that is fair to all holders of government paper,” says Jamaica. The IMF is scheduled to approve Jamaica’s program January 27 if the offer succeeds and the government says it will only accept “substantially, 100% participation.” The government also plans to use $40m from the IMF and multilateral funding to create a financial sector support fund, to provide a source of liquidity to eligible financial institutions affected by issuing new bonds in the exchange. “The news is positive for external debt, and in line with our longstanding view that any form of liability management would be restricted to domestic debt,” says JPMorgan. “However, a failed domestic debt exchange would significantly increase the probability of a comprehensive debt restructuring,” it adds. The shop remains overweight Jamaica in its model EMBIG portfolio, noting a 7.5% return from Jamaican global bonds since late November. Jamaica is out with a 60-day government note paying 12%.