* 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 (Reuters) - 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 market issuers.
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 relations.
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 in 2013.
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 coup.
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 said.