Uruguay seeks to capitalize on local currency appetite

WASHINGTON, Oct 8 (IFR) - Uruguay is exploring ways to capitalize on renewed investor appetite for local currency debt as it seeks to plug its funding gap next year, the country’s debt head told IFR Saturday.

Moderating inflation and a strengthening peso have helped the South American nation increase the appeal of its local bonds at a time when investors globally are struggling to boost returns.

“We see renewed appetite for local currency,” Herman Kamil told IFR on the sidelines of the IMF/World Bank meetings. “We are always looking for ways to increase stable sources of funding in local currency.”

Uruguay plans to issue about US$2bn-equivalent in local and international bonds in 2017 to help meet financing needs of US$2.757bn for that year.

That is up from total bond issuance of US$1.75bn-equivalent this year, which included a US$1.147bn tap of existing international bonds the sovereign completed in July.

While Kamil expects to return to the hard currency bond markets, the country is also considering ways to cater to the rising appetite for local currency debt.

For now that is likely to occur through the domestic markets as opposed to the larger Global peso-denominated inflation linkers the country offered to foreigners in the past, Kamil said.

This time, investors are increasingly expressing an interest in buying fixed-rate peso bonds, and the government has already made efforts to heighten the appeal of the domestic markets, he said.

Foreign accounts can already freely move in and out of the market, and also have the option to receive principal payments in dollars or pesos.

“The easier we make it for foreigners to liquidate their positions and leave, the more likely they will stay,” Kamil said.

Tapping peso debt has its appeal given the importance the rating agencies put in the risks of carrying too much hard currency debt.

But Uruguay may want to wait a bit as the cost of nominal debt is likely to fall further as Uruguay’s inflation declines.

“We like local currency debt but not at any price,” said Kamil. “We have to be mindful of the fiscal impact.” (Reporting by Davide Scigliuzzo; Editing by Paul Kilby)