March 8, 2014 / 12:10 AM / 4 years ago

UPDATE 2-Honduras to issue $1 bln bond in 2015 to refinance debt

TEGUCIGALPA, March 7 (Reuters) - Honduras plans to issue $1 billion in bonds on international markets in 2015 to refinance the country’s internal debt, Finance Minister Wilfredo Cerrato said on Friday.

The bond sale will partially restructure the Central American country’s rising local debt, Cerrato said.

Honduras, one of the poorest countries in the western hemisphere, is facing a critical financial squeeze as its internal debt has quadrupled since 2008 to $2.8 billion.

The planned placement follows the country’s first-ever issuance of sovereign debt last year in two installments of $500 million each. They were used to pay down internal debt and partially fund the government’s budget.

At the end of last year, the government’s fiscal deficit was 7.7 percent of gross domestic product - its highest level in nearly 20 years. The country’s new budget seeks to narrow that gap to 4.7 percent of GDP in 2014.

The planned bond issue aims to “restructure expensive short-term internal debt with longer-term debt,” Cerrato said.

The issuance will swap two-year maturities at high interest rates for 10-year maturities at lower rates, he said.

The country’s finances have suffered in recent years as the cost of servicing its local debt has grown from $65.8 million in 2008 to $789.6 million last year.

Debt service costs are expected to total $930 million in 2014, according to the government’s budget estimates.

Government officials are seeking a new line of credit with the International Monetary Fund this year after passage of a major tax and spending reform in December that seeks to generate an additional $800 million annually.

“Along with the fiscal reform, efforts to rein in spending, restructure local debt and grow the economy, we’re going to go to the IMF to seek a new agreement in 2014 or the beginning of 2015,” said Cerrato.

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