US$480 Million, 12-Year Bond a Signal of Confidence in Jamaica

Economist in the Ministry of Finance and the Public Service, Keenan Falconer, says the Government’s first structured securitisation transaction in the international capital markets is a sign of confidence by international investors in the quality of Jamaica’s financial instruments.

The Government of Jamaica successfully secured US$480 million through the securitisation of assets belonging to the Norman Manley International Airport (NMIA).

Mr. Falconer explained that securitisation is the process of converting an asset into a security, which is a financial instrument that has an underlying value and is often interest-bearing, in order to sell it to raise revenue.

“In this case, the Government has grouped together expected revenue sources over the next 12 years that are due to the NMIA and converted it into a bond, which is the security. They then sold this security to an investor or group of investors in the international capital markets,” he noted.

Under the transaction, the investors have the right to collect revenue from the persons who owe it to the NMIA for the next 12 years, while the Government will get cash for selling them, today.

“It’s an exchange of money expected in the future in order to get money in the present of an equivalent value,” Mr. Falconer pointed out.

After covering fees associated with the transaction, the net proceeds will be used for paying down some interest costs on the national debt, as well as budgetary support for recurrent expenditures, including spending on government programmes and paying wages and salaries.

“Some of the funds will also be used to finance capital expenditure through greater spending on new infrastructure projects like the SPARK programme,” Mr. Falconer noted.

This transaction means that the Government will now be able to receive cash to pursue its development objectives and implement initiatives announced in the Budget for the rest of the fiscal year.

Furthermore, Mr. Falconer told JIS News that despite the issuance of a bond, which is a debt instrument, “this transaction means that Jamaica does not take on any additional debt”.

A special purpose vehicle (SPV), Kingston Airport Revenue Finance (KingAir) was created to oversee and manage the bond.

The entity’s primary role is to collect the proceeds from the international investors paying for the bond, and to remit those funds to the Government of Jamaica, Mr. Falconer explained.

As a result, the Government has granted KingAir rights to 52.33 per cent of the revenue generated by the NMIA allowing the company to carry out its functions in exchange for the funds raised.
This means that the bonds are solely obligations of KingAir, meaning they do not constitute debt for the Government of Jamaica.

After repaying the bond, all revenue rights will revert to the Government, and any surplus generated will be shared with the Government annually.