Caribbean issuers are in the news after a long absence. Bond issuance from the region is at a 10-year high. Although bigger Latin American competitors usually overshadow the Caribbean sovereigns, the rally in Latin sovereign bonds has opened up the market for these smaller, but usually better-rated issuers. Barbados and Trinidad and Tobago, which both have investment-grade ratings, came to market earlier in the year. Jamaica, which has a weaker economy, still managed to successfully raise $225 million in September. Even tiny Belize, technically a Central American republic, but usually considered a Caribbean state, won a BB rating from Standard & Poor’s and is likely to raise about $50 million next year. Caribbean bonds usually have to accept wider spreads than their ratings would suggest to compensate for their generally small, illiquid and sporadic offerings. For instance, a $250 million deal from Trinidad and Tobago, rated BBB- by Standard & Poor’s, was priced at a spread of 398 basis points over Treasurys. Uruguay, which has a similar rating, placed a $300 million issue in June at a spread of 300 basis points.
Jamaica sold $225 million in seven-year, dollar-denominated bonds in August, with a 12.75% semi-annual coupon. This was its first dollar issue since January 1998. The bonds were priced to yield a hefty 13.125%, which allowed Bear Stearns, sole lead-manager and bookrunner, to increase the original $200 million issue size. The issue was a triumph, considering the country’s fragile public finances.
Murna Morgan, senior debt manager at the Jamaican finance and planning ministry, says, “We were looking to broaden our investor base in the US rather than going for a 10-year maturity.” She says that more than three-quarters of investors were institutional accounts. The government says it will use the funds to retire more expensive local currency debt, free up local funding for private companies and beat an expected rush in emerging market issuance. In February Jamaica issued the first euro-denominated bond from a Caribbean sovereign, placing Eu200 million in three-year bonds in a deal managed by Deutsche Bank. In September, the Inter-American Development Bank (IDB) approved a $150 million loan to help the government strengthen the country’s financial sector . The World Bank and the Caribbean Development Bank are also contributing to the program.
Standard & Poor’s rates heavily indebted Jamaica a B, five notches below investment grade. Moody’s gives Jamaica a Ba3, three rungs beneath investment grade. Jamaica has one of the highest debt levels of all rated sovereigns. Its public sector debt stands at 144% of GDP. The public-sector deficit has risen to over 9% of GDP. The government plans to cut public sector debt to 94% of GDP by 2005, by cutting its deficit to 5% of GDP by next year and later reducing it to 0.5%.
Standard & Poor’s has awarded Belize a BB rating, higher than Brazil’s B+ but still two notches below investment grade. Belize is rated Ba2 by Moody’s Investors Service, also two notches below investment grade. In a June private placement led by Salomon Smith Barney, Belize raised $29.1 million with five-year bonds, with a 9.25% coupon priced to yield 11.25%. S&P says the country’s low public debt and conservative fiscal policy justify its rating. This year’s budget deficit should come in at a modest 1.2% of GDP and the economy should grow 5%. Belize has remained politically stable since independence from the United Kingdom in 1981. However, it relies heavily on agricultural exports that include bananas and sugar.
The government says it may use the fresh ratings to issue a further $50 million in bonds in a public offering next year, to finance a four-star hotel on the Caribbean island of San Pedro, off Belize’s northern coast. Previous infrastructure finance has come from multilateral agencies and from western government development agency loans.
Trinidad and Tobago
Strong public finances, a successful diversification away from oil revenue and an investment-grade status enabled Trinidad and Tobago to place a 20-year, $250 million bond in June. The paper was placed with a fat spread of 398 basis points over Treasurys. Although oil revenues are no longer the principal source of government revenue, rising oil prices have further improved the country’s standing in the markets. Last September, Standard & Poor’s raised the country to BBB- and Moody’s subsequently upgraded it to Baa3. The government is using the proceeds to finance infrastructure projects.
In September, the US government’s Overseas Private Investment Corporation approved a $53.4 million loan guaranty for the construction of a 29 million-gallon-a-day desalination plant to reduce water rationing on the islands and provide water for a new industrial park.
The region’s best-rated sovereign last issued bond in February with a $100 million, 10-year issue paying an 8.75% coupon, giving it a 270 basis point spread over US Treasurys. Moody’s increased the country’s rating by two notches to Baa2 from Ba1 at the time of the issue. S&P rated Barbados A- last December. Credit Suisse First Boson lead-managed the offering, which attracted strong interest from US accounts. The sovereign’s previous issues were small enough to qualify as private placements, usually raising $30 million or less. The most recent issue allowed the government access to a new set of investors, thanks to its investment-grade status. Barbados has not been active in the markets for the last six years. Like Trinidad and Tobago, the government plans to use the funds to finance new infrastructure projects.
The IDB announced a $21 million loan to the Bahamas, finance reconstruction in the Family Islands which were damaged by Hurricane Floyd in September 1999. Approval of a second loan for $9 million, to rebuild infrastructure damaged in previous years by storms, is expected soon. The first stage of the two-phase project is intended to repair the islands’ roads, bridges, seawalls and docks. The Bahamas also received some bad news from the OECD’s Financial Action Task Force report listing 15 jurisdictions deemed to be “noncooperative” in the struggle against money laundering. The report said, “Although the Bahamas has comprehensive anti-money laundering legislation, there are serious deficiencies in its system.”