Bond market contraction closes out 2020
Funding sought as exempt distribution instruments or bonds through local brokerage houses contracted by 44 per cent in 2020, breaking the trend of the bond market as a growing source of capital since 2017, according to data recently disclosed by the Financial Services Commission (FSC).
Fewer companies registered proposals for corporate bonds and even less were approved by the regulatory authority.
Analysts note, meanwhile, that the uncertainty caused by the novel coronavirus pandemic and contracting revenues were the cause.
The FSC report on registered and issued exempt distributions provides the total number, value of exempt distribution instruments registered and issued year over year (YOY).
It showed that companies sought to raise $143.8 billion in funding in 2020 as opposed to $257.9 billion in funding in 2019.
Meanwhile, exempt distributions approved and issued totalled $97.1 billion, in 2020, down 33 per cent compared to 2019. United States dollar issues totalled US$84 million, down 74 per cent over 2019. In the Us-dollar segment, companies applied for $226 million in financing, down 46 per cent year on year.
The trend is a reversal of the growth seen in the three years prior.
Herbert Hall, vice-president of Investment Banking at NCB Capital Markets, explained, “As the pandemic hit Jamaica and everyone grappled with the unknown, the uncertainty coupled with declining revenues resulted in many businesses/companies re-evaluating their plans including funding.
“Many took the decision to either cancel or postpone the same. Investors also retreated from the market, opting to hold cash...and as such there was not much demand. The market was quiet for approximately seven months, from April to October/november 2020.”
The new year, 2021, has also seen increased redemption of outstanding bonds.
At year end 2020, the total value of Jamaican dollar bonds was $339.45 billion which declined to $305.05 billion at month end January 2021.
Since then borrowings have risen somewhat with Jamaican dollar totals increasing to $325.45 billion as at May 31, 2021.
USD exempt distribution balances have, comparatively, declined. At year end 2020, the value of total distributions in issue was US$697.33 million. At the end of May, 2021, the total was US$651.54 million.