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NEW YORK, July 23 (IFR) - Jamaica came to market on Thursday with an attractively priced two-tranche bond sale, looking to raise at least US$1.5bn to retire debt owed to Venezuela and improve its credit metrics.
The offering, which consists of 2028 and 2045 bonds, is geared to sell, with leads Bank of America and Citigroup setting price talk of high 6%-7% and 8.25% area, respectively.
The deal is likely to ease the sovereign's amortization schedule, which is already particularly heavy in 2025.
But the question is whether the pricing makes sense, as Jamaica (Caa2/B/B-) will use proceeds to buy back some US$3bn in PetroCaribe debt owed to Venezuela at a steep discount of US$1.5bn.
"Based on the initial price thoughts the deal is very cheaply priced," said a banker away from the trade.
The new 30-year is coming some 150bp wide of the Caribbean nation's longest outstanding bond - an 8% 2039 that is being quoted with a mid-market yield of around 6.75%.
The 2028s are likewise offering a decent pick-up to the outstanding 7.625% 2025s, which have been trading at a mid-market yield of around 5.875%.
"It is hard to imagine that this is net present value-positive," one investor told IFR.
"They are raising long-term money at 8.25% and retiring PetroCaribe debt with an approximately 2% coupon. I have to believe they are going to err on the side of issuing more of the (cheaper) 2028."
The government earlier this month signed a letter of intent with Venezuelan state-owned oil company PDVSA to buy US$1.5bn of notes from the PetroCaribe Development Fund.
Debt to GDP would have dropped from 136.7% to 126.3% for fiscal year 2014-2015 if the debt had been retired earlier this year, according to the investor presentation.
Thursday's offering is expected to attract decent demand from international accounts, allowing leads to tighten pricing from initial talk.
"(International) investors are underweight Jamaica and it has been one of the best performing counties in the EMBIG index over the last few months," the investor said.
Jamaica has mandated Bank of America and Citigroup as leads on the deal, which is expected to launch and price later today. (Reporting by Paul Kilby and Davide Scigliuzzo; Editing by Marc Carnegie)