* Government keen to tap investor appetite for higher yields
* Dollar-denominated 10-year bond may price Thursday-sources
* Paraguay seen paying similar rate as neighboring Bolivia
By Mariel Cristaldo and Joan Magee
ASUNCION/NEW YORK, Jan 16 Paraguay plans to sell
up to $500 million in 10-year bonds as early as Thursday in its
first foray into global credit markets, sources familiar with
the deal said on Wednesday.
Paraguay is one of South America's poorest and most unstable
nations, but its economy is expected to rebound strongly this
year and the center-right government is keen to tap investor
appetite for the higher yields offered by smaller emerging
The country, which billed the issue as its first in
international markets, is offering to pay about 5 percent
interest on the dollar-denominated debt, the sources said,
asking not to be named because the deal has not been concluded.
The planned debt sale would follow in the footsteps of
neighboring Bolivia, another newcomer to global credit markets
that sold $500 million in 10-year bonds at par to yield 4.875
percent in October.
"Given the number of similarities between the two economies
-- both being open commodity-based economies with similar
ratings -- we think that Bolivia's issuance would serve well as
a comparison for pricing for a new bond from Paraguay," Barclays
Capital said in a briefing note this week.
"In particular, the indebtedness is very low compared with
other names in the region, this is clearly a positive catalyst
for flows into the new issue," it added.
The soy- and beef-exporting nation last issued debt abroad
in 2000 when it sold $400 million of debt in a direct sale to
two banks in Taiwan, with which Paraguay has diplomatic
Paraguay's economy shrank 1.2 percent last year due to a
poor soy harvest and a foot-and-mouth disease outbreak that hit
beef exports, but the central bank expects a 10.5 percent bounce
Farmers' luck has improved this season. A record soybean
harvest is forecast and the country has won back former markets
for its beef exports.
But despite this year's rosier economic outlook, Paraguay
faces many challenges.
The landlocked nation of about 6.5 million people is
considered one of the world's most corrupt countries and
political instability haunts its young democracy.
Last year, former President Fernando Lugo was ousted in a
lightening-quick impeachment process that critics and
governments in neighboring countries said was tantamount to a
Current President Federico Franco was sworn in to head the
government until a presidential election due on April 21 that
will likely pit two center-right candidates.
Central Bank chief Jorge Corvalan told Reuters last year
Paraguay was not simply aiming at a one-off issue but wanted to
"build a closer future relationship with the markets."
Paraguay hired the investment-banking units of Bank of
America Corp and Citigroup Inc to handle the
issue, which is rated Ba3/BB/BB- respectively by Moody's,
Standard & Poor's and Fitch, sources familiar with the deal