High Interest Rates for Investors in Dominican Republic
Interest Rate on Bonds explained by Bankers
With harsh comments about the "real" interest rates on the sovereign
bonds recently placed on the world market, two bankers explain how the
figures were reached.
Diario Libre said that two executives of Barclays and J.P. Morgan who
negotiated the US$500 million in sovereign bonds that were recently
issued by the Dominican Republic on the international market, stressed
the receptivity that they received among the foreign investors. Gustavo
Ferrero, an executive at Barclays and Roberto D'Avora from J.P.
Morgan, said that the reason for the receptivity is that the Dominican
Republic offers very interesting credit conditions for investors. They
said that the bonds were placed on the market at 6.75% a year, the
lowest interest rate for the country on the international market since
the first bonds were issued in September 2001.
They said that the bond existed and had a 7.5% coupon, but the
placement that the Dominican Republic carried out among investors was
successful, with a premium value of more than 100% of face value. "The
bonds were sold at US$103.545, and when the yield of these is
calculated, with the 7.5% coupon, it implies an implicit rate of
6.95%," they said. They added that the premium was US$17.7 million
above the nominal US$500 million, which means a percentage of 3.545%.
Moreover they obtained US$8.5 million in accrued interest.
Meanwhile, a Central Bank statement cleared up the fact that the excess
demand for the bonds "caused the placement cost to increase over par
value, or price of emission, reducing the net financial costs for the
country to 6.95%, below the coupon rate of 7.5%." According to the
Central Bank, this means that the investors voluntarily paid a premium
or additional sum of US$17,500,000, which the country received at the
moment of placement, which made it possible that the net effective
interest rate would be 6.95% and not 7.5%.
If you are considering investing in Dominican Republic property, as opposed to bonds, please contact me and I will be happy to help.