House Approves Refinancing of Highway 2000 Loan

The House of Representatives has approved the refinancing of euro 204.4 million loan to the Development Bank of Jamaica (DBJ) from Bandes Venezuela, on lent to the National Road Operating and Constructing Company Limited (NROCC) for the construction of Highway 2000.
Prime Minister Bruce Golding, who moved the resolution, told the House Wednesday (July 28) that the loan was originally denominated in Euros but that, in March of 2008, the DBJ entered into a cross currency swap arrangement with Citibank, in order to hedge against significant movements in the Euro against the US dollar.
“That arrangement involved certain conditions that required additional guarantees; it required monthly payments to a reserve fund to cover margin calls and conversion risks,” Mr. Golding said. He explained that, because of the significant weakening of the Euro against the US dollar, the arrangement has become unfavourable.
“Indeed, the debt service payments that DBJ now has to make exceeds the amount which is actually due and payable to the bond holders, therefore it is wise for us to seek to exit these arrangements,” Mr. Golding said.
The Prime Minister also explained that the loan is to be refinanced through the issue of a short term note, which would be for a period of 12 months at an interest rate of 9.25 per cent. He said that, within that 12 month period, new long term bonds will be issued to replace the interim financing.
“It is proposed that this will be for a period of 12 years at 9.375 per cent. What this will do is allow for the unwinding of the cross currency swap arrangement with Citibank and, therefore, relieve the DBJ of the contingent liability which has proven to be quite onerous,” he stated.
He added that the transaction will be conducted by a joint team of local and international intermediaries, which have been chosen through a competitive bidding process.
“The arrangement is that they will purchase the existing notes at a discount, and will then market the new bonds at an appropriate time on the local and international market,” Mr. Golding noted.
He said that the Government anticipates that, after the unwinding of the arrangements with Citibank, there will be a balance of some US$35 million, which will enable ENROCC to finance its share of the next phase of highway 2000.
Opposition Spokesperson on Finance, Dr. Omar Davies, suggested that there were too many occasions on which significant issues were being dealt with in a rushed manner. He also asked for a firm commitment from the Prime Minister, that any further actions taken by entities, in terms of negotiations for external loans, must have the full involvement and authorisation of the Ministry of Finance before they are concluded.
He recommended that the purchase price be conveyed to the government, and compensation of the arrangers be capped at a reasonable sum, or at a specified commission rate.
In his response, Mr. Golding stated that it was not a fair criticism, to say that the Government has a pattern of coming to Parliament, “at the last minute”, with matters. However, he agreed to amendments specifying that the purchase price of the Bandes bonds be made transparent, and that the total compensation to the arrangers shall be reasonable.
The Prime Minister noted that these transactions will not increase the debt stock service obligations.