NEW YORK, July 28 (IFR) - Paraguay decided to test LatAm
resilience Monday, roadshowing a new bond as the market swirls
around a looming debt default by Argentina.
Rated Ba2/BB/BB-, Paraguay will kick off investor meetings
Tuesday, just a day ahead of a deadline for its neighbor to
plunge into its second default in a decade.
Bankers and investors both said they expected no contagion
from events in Argentina, where the sovereign is locked in a
bitter battle with holdout creditors.
"Paraguay is a trading partner of Argentina and the two
countries are of course close geographically," said Carl Ross,
head sovereign analyst at Boston-based asset managers Grantham
Mayo van Otterloo.
"But the market is looking at Argentina as an isolated
At worst, traders expect an Argentine default to lead to
some weakening in the region's secondary market bond prices.
Paraguay should be able to price the new issue not far off
its only international bond outstanding - a 4.625% US$500m 2023
note issued in early 2013.
That note was quoted at a cash price of around 101.5
mid-market, equivalent to a G-spread of around 220bp and a yield
ON THE UP
Since its debut in the international capital markets a year
and a half ago, Paraguay has won over accounts with a pledge to
prudent economics and increased investment.
"It's a pretty strong Double-B credit, especially if you
look at the strength of the agricultural and electricity sectors
and at the sovereign balance sheet," said Ross.
"There are some offsetting traits on the institutional and
political side of things, but overall it's a decent story."
Citing encouraging signs on implementation of reforms,
Moody's and Standard and Poor's both upgraded Paraguay's ratings
by one notch this year, to Ba2 and BB respectively.
"I wouldn't be surprised to see another positive rating
action over the next six to 12 months given the way Paraguay's
debt dynamics are behaving," said Sean Newman, senior portfolio
manager at Invesco.
"They are trying to diversify the economy away from the
agricultural sector, and they have done a good job
attracting foreign direct investment from regional players."
Economic activity, which has historically been volatile due
to dependence on the agricultural sector, accelerated sharply in
2013, with real GDP growing by a record 13.6%.
Economic growth is expected to decline to 4.8% in 2014,
according to IMF estimates, but the country's debt-to-GDP ratio
should remain under 15%, well below similarly rated peers.
Bank of America Merrill Lynch and JP Morgan are arranging
the investor meetings, which will take place in Los Angeles,
Boston, New York and London until August 1.
(Reporting by Davide Scigliuzzo; Editing by Paul Kilby and