Investors: Gov’t transparency, free-flowing information critical to bond market success
Transparency and free-flowing information on the government’s behalf are crucial to keeping the island’s standing in the U.S. bond market, which is keeping close tabs on what is being done locally, several representatives of the investment community said Thursday during the first day of the Puerto Rico Credit Conference in San Juan.
Furthermore, maintaining fiscal discipline “no matter who is in office” will also be important going forward.
“The one thing that will probably keep a good following is transparency. Investors need to have confidence in the information that comes out of the Government Development Bank and Puerto Rico,” said Robert Servas, managing director and head of public finance syndicate for JP Morgan.
The other panelists, representing Citi Global Markets, Barclays Municipal Research and UBS Asset Management of Puerto Rico, echoed his comments.
“Puerto Rico is doing much better than it used to. You wouldn’t see as many large investors as there are right now if they didn’t get the information they needed to invest,” said Thomas Weyl, director of Barclays Municipal Research. “Investors need to know they can always get the story, and it’s a big reason why people are comfortable using Commonwealth papers now.”
Puerto Rico’s commercial paper “trades extremely well, but confidence is fragile and transparency is critical,” said Peter Bartlett, managing director at Citi Global Markets.
One of the reasons for the brisk interest, said Leslie Highley, managing director at UBS Asset Management, is that Puerto Rico’s commercial paper is tax exempt, so it has good returns for investors.
During the panel discussion, investors seemed unfazed about the ratings reviews and downgrades by Moody’s, which in August 2011 lowered Puerto Rico’s credit rating to Baa1, giving it a negative outlook due to its escalating pension fund problem and its practice of borrowing to cover budget deficits.
Upon questions regarding the potential effects of the upcoming elections, the panelists said the bottom line for the incoming administration is to uphold the current trend of laying all of the information about the state of Puerto Rico’s fiscal condition on the table.
“Bondholders watch elections but at the end of the day, they don’t care about who’s in office. They care about getting their principal and interest payments on time,” said Gavin.
Meanwhile, Bartlett said the market needs to see “progress in budget and fiscal discipline” regardless who’s in power.
However, he noted that bondholders are already “firmly behind the [Gov. Luis] Fortuño administration. They like what they see, they like what’s going on here.”
“There’s going to be a lot of people looking at this election very closely and will be looking progressively at what will happen,” he said.
Media harshly criticized
During the panel discussion, Highley ripped into the local media’s coverage of financial news, saying the “negative news that is all over” scares investors.
“People think Puerto Rico is going bankrupt because that’s what’s published in the paper,” said Highley. “The media scares investors and the government has to do more to talk more about the good side of Puerto Rico. That’s where we are failing.”