LatinFinance - July/August 2014 - 56

PARAGUAY | Capital markets

manager - although that is balanced by
the risk that the investment program
becomes more burdensome, and cyclical
risks from the agricultural sector, he
adds.
In June, the 2023 bond was trading
tighter than the 4.625% yield it paid at
reoffer. Investors saw it offering a spread
of between 180 basis points and 200
basis points, suggesting a new 10-year
bond might reasonably offer a yield in
the low-200 basis points area.
That secondary market performance
of the existing bond would make an
investor question how much value is left,
says one portfolio manager. Yet for the
sovereign, the levels would be attractive
for a market return.
And there's no
Tapping the markets
question a bond sale
Internationally marketed bond sales from Paraguayan borrowers
would go well: "If
2009-2014 YTD
Ecuador can issue,
Issuer
Deal total value $
Deal pricing date
Paraguay surely can,"
(Face) (m)
he says, referring to
BBVA Paraguay S.A.
100
04 Feb 2011
the recent Eurobond
Banco Continental
200
10 Oct 2012
market return by the
SAECA
Andean sovereign, six
Telefónica Celular del
300
06 Dec 2012
years after defaulting.
Paraguay - Telecel
Loose global
monetary conditions,
Republic of Paraguay
500
17 Jan 2013
which helped
Banco Regional
300
16 Jan 2014
Paraguay return to
Source: Dealogic
the bond market in
2013, remain in place.
Quantitative easing continues in the US,
and agriculture.
albeit more slowly, and is ramping up in
Daniel Correa, deputy minister for
Europe.
the economy, told LatinFinance in March
Still, US Treasury yields are higher
that the government had established a
than they were 18 months ago. The
plan of approximately $16 billion over
10-year US Treasury bond traded
the next five years.
between 1.86% and 2.03% in January
"An important part of that fund
2013. That had risen to 2.5% and 2.6% in
comes from multilateral credits, from
June 2014.
donations, and from international bond
"Paraguay has said in the past they'd
sales, as well as an important component
like to issue $1.5 billion in debt," says
being from public-private partnerships,"
Sean Newman, portfolio manager at
Correa said.
Invesco. "I think that is surely subject
to what the level they want to come
High-yield favorite
at. I don't think a new issue would be
The sovereign's 2023 bond has
poorly received, I think it would be well
performed well since it was sold in
received."
January 2013. And for investors that look
Paraguay's fundamentals are
at sub-investment grade debt, it remains
improving, and the country is pushing
an attractive credit.
hard to smooth out cyclical swings in
Low debt, tight fiscal metrics and
GDP, adds Newman.
strong foreign exchange reserves are
"They're trying to increase their
cited by positives by one portfolio
and an aqueduct.
Helping Paraguayan producers, large
and small, get their products to market is
an important focus for the government.
In addition to allocating cash from the
forthcoming bond sale, it is tapping
multilateral lenders also.
CAF, the development bank of Latin
America, agreed in April a $272 million
loan to Paraguay to finance a fouryear road building program. The new
infrastructure is intended to facilitate
trade with Argentina, Bolivia and Brazil.
A further $100 million from the
next bond sale will go to housing
improvements, with smaller amounts
earmarked for improvements in energy

56 L ATINFINA NCE.COM - July/August 2014

CARLOS FERNÁNDEZ, CENTRAL BANK

"WE DO NOT WANT THE
DEBT FOR THE SAKE OF
IT, ONLY IF THERE ARE
CONCRETE PLANS AND
PROJECTS"

production of clean energy, with
agreements Brazil and Argentina, and
trying to attract FDI into mining sector,"
he says. "They're taking good steps
in right direction to diversify, but the
initiatives will take time. They're tabling
the right set of packages at least."
Ratings agencies are recognizing
improvements in Paraguay. Standard
& Poor's lifted the country a notch to
BB in June, four months after Moody's
upgraded Paraguay to Ba2. Fitch rates the
country BB-, with a positive outlook.
S&P also lifted the ratings on two of
the country's lenders in late June, partly
driven by the sovereign upgrade. Both
Banco Continental and BBVA Paraguay
moved up one notch, to BB.
Specific risks remain for banks,
however. As well as the high dollarization
of the economy, expansion of credit has
averaged 20% annually over the past five
years, something S&P sees as a concern.
And the sovereign also has work to
do.
When Moody's ratings committee
convened to discuss Paraguay at the end
of January, it discussed the country's
improved institutional and financial
strength as drivers for the upgrade. But
the committee also noted that Paraguay's
fundamental economic strength had not
"materially" changed, and nor had the
country's management and governance.
S&P, meanwhile, points to the
country's low tax take as a limitation
on effective fiscal policy. And while the
sovereign has a low debt ratio, it needs
to strengthen its debt management office
given its increasing exposed to global
bond markets, the agency said. LF
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