Paraguay says planning depositary notes deal

Mon Mar 18, 2013 2:33pm EDT

PANAMA CITY, March 18 (IFR) - Paraguay is poised to issue US$300m of 10-year global depositary notes (GDN) as soon as next month, the head of the country's central bank told IFR.

The news comes just weeks after Paraguay made its debut in the bond markets, underscoring the favorable conditions for Latin American issuers as investors chase better-yielding investments.

Bolivia, Panama and even Ecuador, which selectively defaulted on its international debt in 2008, are also planning to tap the bond markets, bankers said at the International Development Bank (IDB) conference in Panama City.

The spread differential between the 4.625% achieved on Paraguay's debut 10-year bond earlier this year and the 9.000% on the domestic curve would make a local currency transaction attractive for foreign investors.

"When we had our roadshow for the dollar bond, we kept being asked by investors how they could get into the local market," Paraguay's central bank president Jorge Corvalan said.

"Although we have very open capital markets, the complicated part is the custody issues for which the GDN will be used to bridge the gap."

The appreciation of the country's currency, the guarani, means that any issue would be almost like offering a double yield. Paraguay issues every three months or so in the local market.

Citigroup would manage the new issue, he said.

ACCESS FOR OTHERS

Peru has thus far been the most high-profile LatAm sovereign to use GDNs, which are designed to help foreigners gain access to the local market without setting up accounts on the ground.

More recently, Mexican state-owned oil company Pemex became the first corporate to sell such instruments. However, the product has had mixed reviews, mostly because of its illiquidity.

Meanwhile, Panama Economy and Finance Minister Frank de Lima said his country was studying the possibility of a liability-management operation to take out its existing 2015s and perhaps issue a new bond with a tenor of up to 30 years.

Given that interest rates would start to rise at some point, it would be prudent to tap the longer end of the curve now, he said.

Long absent from the dollar market, Panama has been focusing on developing its local curve, increasing domestic bonds as a percentage of total debt from 8% in 2009 to about 24% today. It is now selling fixed-rate debt among local investors out to 10 years.

However, the cost of local-market funding is still about 70bp more expensive than in dollars, partly because of illiquidity. The sovereign is raising 10-year money locally at around 4.25%, while yields along that part of the dollar curve are around 3.50%.

The government is talking to an international clearing house about setting up shop locally to give foreign investors easier access to domestic debt markets, de Lima said.

This year, the republic is looking to raise about US$500m in either the international or the local markets, with another US$700m coming from multilaterals.

Panama's last public international foray was in January 2011 when it made a debut in the Japanese market, achieving significantly cheaper funding than its core dollar market.

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