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NWC borrows $15b from NCB

Alphea Saunders Senior staff reporter

Wednesday, May 16, 2018

Government - owned water services utility National Water Commission (NWC) has engaged NCB Capital Markets Limited in a $15-billion refinance agreement to primarily restructure a significant portion of its foreign currency debt and reduce its exposure to risks associated with fluctuations in the value of the Jamaican dollar.

The facility is being issued in tranches, with immediate access to $12.5 billion to fund foreign currency denominated loans, and $3 billion for a number of capital projects across the island for 2018-2019. The remaining $2.49 billion is to be received in 12 months and is tied to specific targets related to the NWC's non-revenue water reduction programme in Kingston and St Andrew.

Of significance is that the parties have negotiated a 40-year repayment for a $5 billion portion of the facility.

The move is being hailed as a step that could help to position the utility company to attract investment and to perhaps go public.

“This transaction sends a great signal to the market,” Prime Minister Andrew Holness stated at a press conference at Jamaica House yesterday during which the deal was announced.

The $15-billion bond deal is the largest transaction for the NWC, and the second-largest Jamaican-dollar denominated transaction of this nature in the country's history.

“We are now creating the NWC as an asset in which pension funds, insurance funds, and insurance funds can invest. That sets the stage for possibly placing the NWC on the stock market, where Jamaicans can own a piece of the NWC in terms of shares,” he said.

The bond issue will allow the NWC to refinance US-denominated loans totalling US$59 million to BNP Paribas and Vinci Grand Projets at interest rates of between seven and 9.7 per cent.

Holness said the NWC, which has been saddled with a poor balance sheet for several years and which has been faced with paying out an additional $1.7 billion in debt due to the depreciation of the Jamaican dollar against the United States currency, is now being positioned as a public asset with long-term revenue streams, as Government shores up its assets to support long-term development.

The prime minister and head of NCB Capital Markets Steven Gooden both pointed out that this was the first debt transaction of this size being undertaken by the NWC, especially without a government guarantee.

“Yes, there are still risks in the market, but the Government is implementing its economic policies in such a way that it is giving greater certainty to the market,” he remarked.

Holness emphasised that deals such as this would not have been possible in previous years. “Government is weaning its appetite for debt and therefore, instead of borrowing the money that is available in the economy, it is leaving that money for other players in the economy to have use of it. That creates an environment where we can have stability in interest rates,” he argued.

“The NWC is an incredible asset, but for many years it has had a poor balance sheet…the decision was made that we should ensure that the NWC's debt is currency aligned, because there was a great misalignment,” he stressed, noting that the agency had been taking on foreign currency debt at high rates, some of which was close to 10 per cent.

Devaluation of the dollar meant that the NWC had to use more of its revenues to pay down its debt, forcing the company to utilise resources which could otherwise have gone to improving its supply and systems.

The prime minister pointed out that instead of depending on the backing of a government guarantee, the NWC, with the strengthening of its revenue streams, would use these inflows to repay the bond.

Gooden remarked that creative facilities such as this demonstrated significant growth in the local capital market and would go a far way in assisting the government to improve its debt profile. He noted that data from the central bank showed that the non-bank financial sector, comprising pension funds, insurance, and securities dealers, had assets of $1.7 trillion.

“This means that in a paradigm where the central government's appetite for borrowing has declined, and rates have fallen significantly, there is a huge supply of investment funds…while on the demand side many infrastructural projects are in need of flexible funding solutions that traditional banks cannot provide,” he said.

NWC supplies more than two million people with water service to include potable water supply and the collection, treatment and disposal of wastewater. It estimates that it supplies 190 million gallons of potable water each day.