Category: Caribbean

RBTT is eyeing the expansion of Jamaica’s Highway 2000 that should come to the market in 4 to 5 months, according to Christopher Mack, vice president of capital markets for RBTT. The $300m deal will be a combination of a refinancing of bonds issued to fund the first phase of the project and new debt, Mack says. RBTT was the lead bank in the placement of a February 2004 $130m bond issue that financed the first phase of the highway, Mack adds. RBTT was acquired by Canada’s RBC in June for $2.2bn.

The cost of obtaining funds to develop large real estate projects in the Caribbean, like hotels, has risen significantly in the past year across various products, according to Tim Lorimer, vp for corporate finance at Scotiabank. One of the drivers for the rising premium is the bigger opportunity cost of deploying cash in such ventures, since today cash can be deployed in lower risk investments with similar returns. For a $150m-$200m greenfield hotel development in the Caribbean, Central America or Mexico, at least two funding options – the term loan B market and mezzanine debt – are no longer available. Twelve months ago, the former was available at rates that hovered around Libor plus 650bp for up to 5 years, while the latter could be raised with coupons of 15% for 36-month construction periods and takeouts of up to 66 months, says Lorimer. Those options are now gone, and while the bank market is still open, the margins there have widened from Libor plus 250bp to the Libor plus 350bp-400bp range for structures with a 2-year construction period and 15 years for amortization. Private equity investors, meanwhile, have also increased their targeted annual returns to 30%-35% from 20%-25%.

Trinidad and Tobago’s SEC is hoping to push through legislation in coming weeks to allow for the creation of a depository receipts (DR) board on the country’s stock exchange, Osborne Nurse, chairman of the SEC, tells LatinFinance. The move, wholly backed by the finance ministry, is an attempt to introduce market innovations that will give local investors more investment options and stimulate trade. The idea to do so was derived from RBC’s acquisition of RBTT, which will remove the latter’s shares from the local exchange, thereby cutting some 13% of the country’s entire market capitalization of roughly $20bn, says Nurse. The SEC requires that RBC list a DR in Trinidad to replace the shares it is buying. The hope, says the chairman, is to permit brokers to create and list DRs of foreign companies that are active in Trinidad, such as BP, BHP Billiton, Repsol and Mittal Steel, and offer them to local investors. The DRs would not be sponsored by the company, and the value would represent a fraction of that company’s stock, while mimicking the trading behavior of its native exchange. Nurse says the ratio of the DR to the original stock could be roughly 1:10, with a price per DR in line with the TTD30-TTD40 range seen in locally listed shares. In order to accurately mimic the trading behavior of the underlying stock, Nurse says the SEC will establish a market-making program and new regulation allowing for DR short-selling and lending.

Plans to establish a pan-Caribbean exchange are regaining momentum, according to Osborne Nurse, head of Trinidad’s SEC. The initiative has been stalled by several factors, including the Neal & Massy takeover of Barbados Shipping which consumed that country’s SEC for several weeks – and disagreements between Jamaica, Trinidad & Tobago and Barbados on how to enforce the local rules on foreign brokers. This coming Thursday, a meeting between the three commissions will be held in Barbados to further discuss the second issue. The proposal is to allow for a mutual recognition of each exchange’s regulations, thereby allowing these to discipline any infraction committed on their domestic exchange. The process, originally expected to be up and running by now, is still at least a month away from becoming official.

In a long-anticipated return to the market, Jamaica has priced $350m in 2019 bonds with an 8.000% coupon at 97.498 to yield 8.375%, or UST plus 417bp. Guidance was 8.250%-8.375%. Principal will be repaid in three equal installments in 2017, 2018 and 2019. The B/B1 issuer had hinted at a tap when it went on a “non-deal” roadshow in February. Proceeds are for general budgetary purposes, with the EUR200m due next February. The plan is to raise about $600m this year in international capital markets to meet financing needs, says Darlene Morrison, acting finance secretary. Finance minister Audley Shaw told LatinFinance last week the sovereign would be considering all its options to get pricing at 8% or under. Deutsche Bank and Morgan Stanley, which took Jamaica on the February roadshow, managed the offer.

The way in which sovereign risk is assessed for small countries like the Caribbean needs to be revised, according to Pablo Breard, Scotia’s head of international economic research. “I think the whole system for sovereign analytics – and that includes ratings – needs to be changed,” Breard tells LatinFinance. “The [small] size of these economies is one of their major structural vulnerabilities. You can’t apply the same model for debt sustainability for Turkey as you do for Jamaica.” A consequence of this is that small countries with lower ratings are unable to fund fiscal imbalances in international markets, and lack sufficiently liquid and developed local markets to do so. “That issue needs to be addressed,” says Breard, who adds that there is a need on the part of the sovereigns in the region for adjustment and belt-tightening going forward. “The favorable conditions for sovereigns to tap the debt markets are deteriorating,” he warns. Breard was speaking on the sidelines of a Euromoney/LatinFinance Caribbean Investment Forum in Trinidad last week.

The Caribbean’s finance ministers are pledging to ramp up their capital markets and be fiscally responsible. Trinidad’s Karen Nunez-Tesheira, called for greater integration with South America and pledged to raise the nation’s profile by making it an international financial center. Among several improvements the country is making to its capital markets are a new securities act and a new financial institutions act – both of which are set for consultation by congress, says Nunez-Tesheira. Broader enforcement and more rigid disclosure are also top priorities to increase transparency. Jamaican finance minister Audley Shaw pledges first and foremost to tackle debt reduction by seeking cheaper sources of financing. “We’re making a very aggressive pitch to multilaterals,” says Shaw, who notes 54% of Jamaica’s revenue goes toward debt service. He also embarked on a bid to make his country an international financial center. While acknowledging Jamaica’s weaknesses in education, crime and economic growth, he pledged intolerance against corruption and highlighted several legislation initiatives designed at eliminating money laundering and tax evasion. They were speaking at the Euromoney/LatinFinance Caribbean Investment Forum held in Trinidad last week.

Banking opportunities are emerging in the Caribbean following the collapse of Bear Stearns, home to Wall Street’s leading practice for the region. JPMorgan and Oppenheimer showcased new Bear Stearns hires at last week’s Euromoney/LatinFinance Caribbean Investment Forum in Port of Spain. These include some of the most specialized bankers and economists in the Caribbean. And Merrill Lynch, historically also a lesser-known institution in the region, tested the waters, bringing with it a troop of economists, salespeople and senior executives to flaunt its growing interest. Other members of the Bear diaspora who did not rejoin the sell side seem set on capitalizing on the vacuum they helped create, exploring investment opportunities for new funds. Meanwhile, top brass at veteran institution Scotiabank sought ingratiation by reminding delegates of the bank’s decades of commitment to the region. Local bank RBTT rebuffed that by claiming an even longer track record, though RBC is acquiring the 106-year-old institution.

As financing opportunities become increasingly sparse for many of the Caribbean’s biggest issuers – including sovereigns like Jamaica as well as innovative high-end real estate developer CapCana – a tone of caution and worry prevails. With a backdrop of high food, inflation and energy prices, the region’s disparate island nations are also confronted with declining tourism, rising financing costs, and in some cases, burdensome debt loads. “We should take on a different tenor and recognize that a crisis is coming,” says Gervase Warner, chairman of industrial conglomerate Neal & Massy Woodgroup. Speaking at last week’s Euromoney/LatinFinance Caribbean Investment Forum in Port of Spain, he characterized the state of affairs as a massive brewing storm. Bankers dedicated to the region dismiss this gloom and doom scenario and point to solid track records in debt repayment and, in the case of Trinidad, economic resilience thanks to oil and gas self-sufficiency.

Jamaican bondholders should not worry about debt payment, despite its macroeconomic and fiscal woes. “Their debt management has been pretty good for the last couple of years,” says Carl Ross, managing director at Oppenheimer. “They’ll be fine,” he adds, noting Jamaica will consider multilateral and bi-lateral debt options as well as a private placement should the public markets not be there. In a worst case scenario, Jamaica would be willing to pay down the maturity with international reserves, says Ross. Jamaica’s reserves stood at over $2bn earlier this year.