Gov't to pay off $21-b highway loan, lift DBJ debt burden
Published:Wednesday | June 30, 2010 | 12:00 AM
Huntley Medley, Contributing Editor - Business
The Government is seeking to the relieve the Development Bank of Jamaica (DBJ) of $J21 billion in debt which it incurred in August 2006 from Venezuel's Banco de Desarrallo y Social de Venezuela (BANDES) for the financing of the early phases of Highway 2000.
This month Cabinet gave approval for a €204 million (J$21.3b) bond issue to refinance the loan, taken out on behalf of the National Road Operating and Construction Company (NROCC), which is responsible for the construction, operation and maintenance of the highway.
Market sources say international accounting and business solutions firm PricewaterhouseCoopers has been engaged by the Government to structure the bond issue, which is to be used to pay off the debt.
At the same time, the transaction will see the debt being taken off DBJ's balance sheet and placed on NROCC accounts, where, some market sources say, it rightfully belongs.
"It is the intention of the Government to pay out the current loan and it is very attractive right now to do so," one source said.
Another market observer noted that post-Jamaica Debt Exchange, there could be a positive market response to the bond issue.
The transfer of the obligation off the DBJ's books to NROCC has been confirmed by chief executive officer of the highway firm, Ivan Anderson.
Anderson was not immediately able to give details of the bond issue being structured or to confirm engagement of the firm structuring the deal. Neither was an update on the debt stock, income-and-expenditure prospects or loss outlook ascertained.
The 20-year BANDES loan, said to have been initially negotiated from as early as 2005 without a Government guarantee, was secured as part of the overall funding arrangements for the construction of a multilane toll highway from Kingston to Montego Bay, with a spur from Bushy Park, St Catherine to Ocho Rios.
The project has since been varied with construction started on a tolled bypass road from Linstead in St. Catherine to Moneague in St Ann.
Working capital
Persons who were close to the BANDES negotiations said the original intention was for the money, secured at a 7.2 per cent rate of interest with only interest payments due for the 20-year period, to be used to refinance a portion of NROCC's debts up to then, and provide the company with working capital until inflows from toll revenues started accruing to NROCC.
This proposed funding, it is said, was designed to keep NROCC, which is yet to earn a penny from toll receipts, off the Government's budget.
Last year, NROCC, which has not made a profit since inception, while its more than J$30 billion debt grows, was listed among state assets being put up for sale by the Government.
Its expenses of J$2.7 to J$3 billion are more than three times its income of J$860 million to J$1 billion.
Losses last financial year were expected to reach J$8 billion, up from J$6 billion in 2008/09.
Late last year, the Government received a US$70 million (J$6b) loan from the Inter-American Development Bank for the highway financing.
Up to two years ago, NROCC was seeking additional loan funding, including from the China Development Bank, to pay for the 25-kilometre Mount Rosser bypass - and the Sandy Bay to Williamsfield segment of the highway, still being worked on, to complete phase one of the project.
These latest works, like the earlier segments of the highway, are being undertaken by French construction company Bouygues Travaux, owners of TransJamaican Highway.
There had been public criticism of the former administration's eleventh-hour decision to divert a significant portion of the BANDES funds - some US$120 million of it - to partly finance the Mount Rosser bypass, the cost of which has ballooned with major last-minute design changes.
Portions of the loan were also said to have been sold to the central bank to provide currency support, further depriving NROCC of needed working capital, and exposing both the Government-owned highway company and the DBJ to major foreign-exchange risks.
Highway 2000 is being developed on a 35-year build-own-operate-transfer concession, which initially required the developers to raise most of the financing. However, NROCC has raised cash both in the domestic market and internationally for on-lending to the developers - a debt that is to be serviced out of cash flow from toll earnings.