October 24, 2012 / 5:50 PM / 5 years ago

Rare Bolivia issue surprises bond market

Oct 24 (IFR) - Bolivia’s first international bond in almost a century surprised the market this week after being around nine times oversubscribed - and printing with a sub 5% yield.

The US$500m 10-year issue was said to have attracted a whopping US$4.5bn in orders, even though the country has a long history of expropriating private assets.

“Yes, you respect the technicals, but at the same time it is clear that the yield on offer doesn’t compensate for political risks,” said Siobhan Morden, head of LatAm strategy at Jefferies.

“Willingness to pay is in question when you look at nationalization policies similar to President Hugo Chavez (in Venezuela).”

But technicals and the rarity of the name carried the day for Bolivia, which took advantage of a market starving for yield and keen on diversification in the tight sovereign space.

Testing the waters with initial price thoughts of 5% area after building a US$1.5bn book last week, the borrower was able to squeeze to 4.875% (plus/minus 12.5bp). The issue stopped short of 4.75% as some investors drew a line in the sand.

“I dropped out on principle,” said one, who acknowledged he would have bought at 5%.

By printing at par to yield 4.87%, Bolivia outshined many of today’s investment-grade sovereigns during their time as BB credits. When Mexico was rated Ba2/BB in 1999, for instance, it printed a six-year bond with a 9.76% yield. In 2006, Colombia, then rated Ba2/BB, printed a 10-year with a 7.45% yield, while later that year Brazil, carrying the same rating, priced its own 10-year at 6.3%.

“I realize Bolivia has current account and fiscal surpluses, but it seems that the market is just chasing anything they can get their hands on,” said Carl Ross, managing director of investments at Oppenheimer.

“The yield doesn’t make a lot of sense.”

But some bankers said that, in the current environment of razor-thin yields, Bolivia’s pricing has its own logic.

“This is EMBI eligible, and Peru, Brazil, Mexico and Chile are trading at sub 2.5%,” a rival syndicate manager said. “If you are a money manager, it ticks the box in the BB space.”

Bank of America Merrill Lynch and Goldman Sachs were leads for the senior unsecured fixed rate notes, which were sold under the 144A/RegS format and are expected to be rated Ba3/BB-.

In a market with little sovereign supply, Bolivia provides rarity value as well as a substantial pick up to Mexico and Brazil, which have 2022s and 2023s trading at around 2.30% and 2.57%, respectively. It also provides a 45bp pick up to Guatemala (Ba1/BB), whose recently issued 2022s are at around 4.20%.

“It is definitely a tight print,” said another banker. “But at the end of the day, people don’t know where to put their money.”

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