July 25 (IFR) - Uruguay has enough cash on hand to cover
debt payments over the next year but could still come to the
international bond markets for funding in 2013, according to the
country's head of public credit.
"We're always looking at opportunities," Azucena Arbeleche
told IFR in an interview. "If you look at our history, we're in
the international markets at least once a year."
Uruguay recently completed roadshows for investors in Peru,
Colombia and Chile, and filed a shelf with the SEC to issue up
to US$4.9 billion in new debt - both moves intended to keep the
country ready if an issuance window opens.
And with another investment-grade rating in hand - its
third, this time from Fitch, in March - Uruguay can now arguably
consider a broader set of financing options.
That is a considerable development after the country spent
years shrinking its exposure to dollar liabilities in order to
shed its junk bond ratings.
According to Arbeleche, 59% of the sovereign's debt is now
denominated in local currency, putting it way ahead of its
original 2014 target of 45%.
Furthermore, she said, rollover risks have been considerably
diminished with average maturities of 11 years and just 3% of
Uruguay's debt maturing over the next 12 months.
Its recent investor meetings were prompted by interest from
local accounts during the sovereign's last foray into the
international markets in November 2012, when it issued a total
of US$854m in new 2045s as part of a cash tender and exchange to
mop up shorter-dated and more expensive euro and dollar bonds.
Accessing the market may be a tougher proposition in the
current environment, though.
Investors have been shying away from emerging markets (EM)
debt on fears that the Federal Reserve will soon unwind the
asset-buying program that has bolstered the asset class.
And Uruguay is likely to face questions about monetary and
fiscal policies that strategists argue have sent the peso lower
and imposed substantial losses on foreigners holding local
In June, capital controls were imposed on non-residents, who
own nearly half the outstanding local sovereign debt and are now
required to deposit 50% of their investments with the central
That move seemed ill-timed given the reversal of investor
flows from the region, not to mention that the currency then
weakened amid rising inflation concerns.
The policy of the central bank and the government is being
questioned, and some analysts even wonder whether Uruguay will
be able to keep its investment-grade rating long term.
But Arbeleche said that the controls do not apply to
investors wishing to rollover existing bonds into new
"We are not seeing additional inflows because of the
measures we adopted, but non-residents didn't sell their
securities," she said.
And she insists that if further rates volatility closes off
the markets to EM issuers, the country has some US$2 billion
worth of contingency lines available with multilaterals - and
that using them is already part of the sovereign's strategy, and
thus would not be seen as a credit negative.
Earlier in the year, Uruguay became the first sovereign
to pre-pay IDB loans and participate in the bank's new resource
reallocation program, which allows governments to access
contingent credit lines.
This made sense because the rates on the loans were above
the sovereign's cost of funding, and because a contingent credit
line reduces a country's cost of carry, as coupon payments are
not required until it is drawn on.
Before the back-up in US rates and the subsequent turn in
sentiment toward EM, Uruguay bonds - particularly the
inflation-linked local currency instruments - benefited from the
investor hunt for yield as well as the rarity value of its
Although its longer dated 2045s have sold off - they were
trading Thursday at a yield of 5.18%-5.11% - its dollar 2022s
were around 3.92%-3.81%, showing the sovereign still enjoys
attractive pricing prospects.
And bankers believe the country could be welcomed by
investors if it is indeed ready to return to the funding
"I think the window is open if Uruguay wants to do
something," one said.
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