Focus: Capital Markets

Still Fixed In

Still Fixed In

Apr. 28, 2013

The central depository institution is called CEVALDOM, and trade settlements are routed through it. After the Central Bank of the Dominican Republic (BCRD) began to issue electronic securities in 2011, all book entries are held at CEVALDOM, allowing for faster trading when compared to more cumbersome physical securities certificates and the opacity of over-the-counter (OTC) trades. The BVRD trades from Monday to Friday, though only between the hours of 10.00 am to 12.00 pm.

Over 2012, the BVRD had some $50 million in nominal terms transacted on the primary market, while the secondary market for bonds and corporate papers saw trading of some $105.8 million in nominal terms over the same period. Over 1Q2013 trading had picked up, with some $60.3 million in nominal trade occurring on the secondary market. Broadly speaking, bonds and certificates issued by the BCRD and the Ministry of Finance represent 85% of the market, with the remaining 15% taken up by corporate issuers. Yields on corporate bonds have tempted many investors from outside the Dominican Republic. As Francina Marte de Tiburcio, General Manager of brokerage Parallex explained to TBY, “A company with a AA rating placed bonds at 7% in US dollars, which is 200, 300, and even 400 points above other markets." With the potential for such strong returns, as well as the more accessible liquidity available for corporates, the results from 1Q2013 demonstrate the increasing popularity of local fixed instruments.

In order to grow the market, a broader range of instruments as well as the issuing of equities may well be needed. Felip Amador, General Manager of the BVRD, sees much promise in the Mortgages Market and Trusts Law that was enacted in 2011. For him, the law “provided the legal foundation for the creation of new legal vehicles such as closed/open-end investment funds, asset securitization vehicles, and real estate investment trusts (REITs)." As the local pensions system has well over $4 billion in assets, the potential for the BVRD to provide more avenues for internal investment seems clear.

However, while in theory the funds may exist, encouraging local business to use the local capital markets to raise funds instead of accessing traditional banking tools will be a long road. “We need to raise awareness among Dominican SMEs of the attractiveness of the market as a tool to reach economic resources," Denisse Medina, General Manager at Valores Leon, underscored to TBY. While awareness raising is one thing, ensuring that any issue receives sufficient investor support and meets with liquidity is another. The need to create market makers in the bond market that could help bring primary placements was an area that Guillermo Arancibia, General Manger of JMMB Puesto de Bolsa, saw as critical. Equally, he also stressed the need for more competition in the market. “The entire market is working via Bloomberg—everyone can see what we offer and what we deal," he said, improving both activity and liquidity levels on the BVRD. While the BVRD is still in its early days, the size of the local pensions market and the need for local companies to grow both locally and regionally could well see the bourse increasingly become a more central actor in the local finance scene.