How would you characterize the Dominican Republic's capital market in comparison to other countries in the region?
The Dominican Republic has a deep fixed income capital market, yet we lack activity in the equity market, which differentiates us from other countries within the region. However, given recently developed regulatory frameworks, the Dominican Republic will be entering a new growth phase expected to boost a stronger development of the local equity capital market. In 2013, for example, we had the first Closed-Ended Fund trading on the exchange, and we are expecting several other listings of mutual funds and investments trusts throughout the coming months. In terms of common equity public offerings, this year the securities regulators approved the first ever IPO, which is expected to be traded on the Exchange by early 2015. Moreover, there is an interesting pipeline of large market-cap companies soliciting approval to go public in 2015. Likewise, we are excited about the prospect of several government sponsored entities attempting to source financing for specific infrastructure projects through the equity markets.
It is a financing model that we have observed in countries like Russia, Turkey, Colombia, and Chile, which prompt the development of their local capital markets while achieving an efficient capital budgeting for project financing. Furthermore, we strongly support this type of initiative, which confirms the government's commitment to the promotion of the capital markets, as a means to achieve sound economic growth and development.
What activities is the BVRD currently focusing on?
The exchange has a three-pronged strategy focusing on providing state-of-the-art infrastructure, engaging in developing new markets/services and taking on significant efforts to improve the investment culture in the Dominican Republic. Within the strategy, we are focused on new and existing issuers, our market participants, and local and international investors. In 2014, we successfully launched a new state-of-the-art trading platform that will help develop new products and markets as well provide broker-dealers with straight-through-processing in the trading, clearing and settlement value chain. We have also launched the first official Dominican government bond index (GOBIX) which will help investors get a real-time sentiment of the fixed-income market and structure new products and investment vehicles. On the primary market, we were concerned with the lack of significant growth given the nascent state of our market; therefore, over the past year, we have developed a join program with the International Finance Corporation (IFC/World Bank) to promote best practices of corporate governance in Dominican companies, and provide those companies with training in finance, strategy, and the possibility of going public, among other topics. During the second half of the year, fixed income issuance has more than doubled the yearly amounts accounted in prior years, and we feel that 2015 should be a year of significant growth as well.
In April 2014, the Dominican Republic sold a record volume of bonds, at $1.25 billion of securities due in 2044 at a yield of 7.45%. What is the significance of this sale for overall national development and what sectors will benefit the most?
When you look back 15 years, the longest part of the local yield curve in the Dominican Republic was less than a year, and local investors were not willing to go further into the yield curve. Nowadays, the government has been issuing bonds at thirty years, in the global markets and up to 15 years of maturity in the domestic market, at historical low yields, which is being impressive given the recent evolution of the Dominican capital market. These bonds are trading above par and with a spread over treasuries tighter than those of many countries in the region, demonstrating a positive surge of investor's confidence in the stability of the political and macroeconomic outlook of the Dominican Republic. In addition, the country's economic performance over the past decade has been widely recognized, attracting a more sustainable FDI flow. Correspondingly, these global bonds are being used as a market gauge to define the cost of capital for many projects in the Dominican Republic, allowing investors to have a better benchmark to define trading opportunities in the local market.
How dependent is the Dominican economy on international trends?
The financial crisis in the US did not hit us hard. We suffered in terms of real estate because potential clients lacked the income to buy a second or third home in the Caribbean. That type of activity might be affected, but in terms of growth and stability we have made significant advances. Our financial industry is stronger than 10 years ago and public financial and monetary policy is focused on achieving the right balance between growth and inflation. However, we are sensitive to foreign exchange fluctuations give our net importer position. Nevertheless, I believe we are reasonably isolated from those global shifts. Finally, our dependence on oil and on contracts with entities such as PetroCaribe are being constantly monitored to determine the potential impact on the economy as a whole.