UPDATE 3-Bolivia sells first global bonds in almost a century

Mon Oct 22, 2012 6:17pm EDT

* Leftist government issues $500 million of debt

* Ten-year bond prices at par to yield 4.875 pct - IFR

* Investors laud "prudent" economic stance despite takeovers

* Analysts caution over country's lack of payment history

By Carlos Quiroga

LA PAZ, Oct 22 (Reuters) - Bolivia returned to global credit markets for the first time in nearly a century on Monday, selling $500 million worth of 10-year bonds in a sign of investor confidence in South America's poorest nation.

Leftist President Evo Morales has tightened state control over Bolivia's commodities-based economy with a string of nationalizations, but Wall Street has praised his government's macroeconomic policies as prudent.

Revenue from the Andean country's natural gas and mineral exports has bolstered the central bank's international reserves and the economy has grown by 4.7 percent on average since 2005, when Morales was elected.

Monday's bonds sold at par to yield 4.875 percent, below initial indications of about 5 percent and equivalent to 306 basis points over comparable U.S. Treasury debt, Thomson Reuters news service IFR reported.

The Bolivian yield compares with the record low 2.686 percent achieved by neighboring Brazil when that country sold $1.25 billion of dollar-denominated 2023 bonds early last month.

Interest in the Bolivian bonds was about $1.5 billion, IFR said, reflecting investors' appetite for the higher yields offered by emerging markets.

Siobhan Morden, head of Latin America strategy at Jefferies & Co, said the yield was low given Bolivia's lack of payment history.

"There has been overwhelming demand for what I believe are supportive technicals. However, the current yield does not compensate for the policy risk premium for a first-time issuer with no track record on debt repayment," she said.

PROSPERITY, CALM

Bolivia, historically one of South America's most unstable countries, has enjoyed a period of relative prosperity and calm since Morales was elected as the nation's first president of indigenous descent.

While still the poorest country in the region, steady economic growth has allowed wealth to trickle down to low-income Bolivians, Economy Minister Luis Arce said during a meeting of the International Monetary Fund in Tokyo this month.

Gross domestic product per capita doubled between 2005 and 2011, while the number of people living on less than $1 a day dropped from over 38 percent to just above 24 percent in the same period.

The public debt stands at 31 percent of GDP, well below Brazil's 65 percent.

International reserves have swelled more than seven-fold to more than $13 billion since Morales took office and now represent 50 percent of GDP.

Credit ratings agencies have upgraded Bolivia this year, citing the hefty reserves, a manageable debt burden and low fiscal deficit.

Fitch Ratings and Standard & Poor's both bumped Bolivia up to BB- this year from B- in 2004, while Moody's upgraded the country to Ba3 from B3 in 2003.

'WILLINGNESS TO PAY'

Boris Segura, a fixed-income strategist at investment bank Nomura, said "conservative macroeconomic management" meant the country had "greatly reduced its main vulnerabilities."

Segura warned about persistent uncertainties, however, saying Bolivia's willingness to honor its debts had not been tested, as it has for fellow leftist-ruled issuer Venezuela.

"Willingness to pay has not been appropriately tested. We are not prejudging the current authorities' stance on this issue, but we suspect that the market is likely to require a risk premium because of this uncertainty," he wrote in a briefing note last week before the launch.

Bank of America Merrill Lynch and Goldman Sachs were the lead managers of the deal, which marks the country's first international bond foray in roughly 90 years.

The last time the country sold sovereign bonds was in the early 1920s to fund railway projects.

This time, the government has earmarked the funds for investment in infrastructure and industrialization projects in energy and mining, a Morales initiative to combat chronic poverty.

"The deal shows that investors don't focus on rhetoric, they focus on the economic data," said Horst Grebe, director of Bolivian research institute Prisma.

"This is good news for Bolivia because it's been out of capital markets for a long time," he added. "It opens the door to further debt sales."

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