WRAPUP 2-Jamaica offers $7.8 bln debt exchange with IMF backing
* Jamaica offers to exchange $7.8 bln in domestic debt
* IMF backs Jamaica plan with $1.25 bln loan program
* S&P says exchange a "default," Fitch says "coercive"
SAO PAULO, Jan 14 - Jamaica offered on Thursday to exchange all its domestic debt worth about $7.8 billion for longer-dated, lower-yielding bonds as part of a plan to shore up an economy heavily battered by the global economic crisis.
The International Monetary Fund backed the plan, agreeing to a $1.25 billion loan deal for the island.
But rating agencies downgraded the country's credit rankings, deeming the exchange a debt default.
After the IMF deal, other financial institutions are expected to release an additional $1.1 billion in funding for the country, the fund said..
Jamaica invited holders of bonds worth about 700 billion Jamaican dollars to exchange them for lower-yielding, longer securities with no haircut, the government information service said on its website (www.jis.gov.jm).
"I ask for the support of the individual bond holder, including the businessman, the pensioner, who have invested in these bonds," Prime Minister Bruce Golding said in a national broadcast aired late Wednesday.
"You have earned good returns on these bonds up to now. I am asking you to share the burden that must be borne at this critical juncture through this unprecedented period of crisis," he added.
The bonds that are subject to the exchange account for more than 50 percent of Jamaica's total debt and carry interest rates of up to 28 percent.
Some $950 million in bonds issued on international capital markets are not subject to the exchange, which will remain open until Jan. 26, the government said. The transaction must be completed by Feb. 16, it added.
"COERCIVE" EXCHANGE
Jamaica's problems follow sovereign debt crises in European and Middle Eastern countries that rattled markets over fears they could spark a new round of turbulence following the global financial crisis.
The IMF has been working on loan deals mainly with European countries hardest hit by the global financial crisis.
Even though Jamaica's exchange offer will not reduce the principal amount of the bonds, rating agencies considered the deal a default.
"In our view, the offer implies that investors will receive less value than promised in the original securities based on the lower interest rate (an average reduction of 6 percent) and maturity extension (an average increase of two years)," Standard & Poor's analyst Roberto Sifon Arevalo said in a statement.
S&P downgraded Jamaica's foreign- and local-currency sovereign credit ratings to SD, or selective default, from CCC/C. The ratings on the bonds not included in the exchange remained at CCC.
Fitch Ratings downgraded Jamaica's local-currency ratings to C from CCC and left them on negative outlook, saying the bond exchange offer proposed by the government is "coercive."
Fitch said the bonds will likely be downgraded to restricted default possibly after the expiration of the offer.
Ratings agencies acknowledged, however, that the exchange will be positive for Jamaica in the long run.
"The consolidation of over 350 securities into 23 new benchmark bonds, the conversion of some securities from callable to non-callable and the introduction of inflation-indexed bonds are positive for domestic creditors and the overall development of the local bond market," Fitch Ratings said in a statement.
Moody's Investors Service said it expected the debt exchange, which would mainly affect local banks, to be orderly since the government and local creditors have been in talks for some time to coordinate on a restructuring.
The need to avoid a general loss of market confidence is an added incentive to secure an orderly restructuring, Moody's said in a statement. (see www.moodys.com)
Fitch added that it may upgrade Jamaica's ratings to the single-B category if the exchange is considered successful, with a participation rate of about 90 percent.
