LatinFinance - July/August 2014 - Paraguay Supplement - 9

Capital markets | PARAGUAY
Paraguay hopes to raise its profile among global investors by tapping international bond
markets

On the map
A

ttracting investor attention as
a small, sub-investment grade
sovereign can be tough.
For Paraguay, that is why tapping the
international bond markets has been so
important. The sovereign has a second
benchmark deal in the pipeline, which
it hopes will further lift its profile among
global investors.
As it opens its doors to international
fixed income investors, Paraguay hopes
to gain recognition for its other efforts to
make the country more enticing to global
investors.
Its reforms have led to credit rating
upgrades from two major agencies this
year already. Yet the country still faces
multiple hurdles before it can join the
investment-grade club. Limited flexibility
on monetary policy, low per-capita GDP,
weak infrastructure and "still evolving"
institutions are factors that restrain the
country's rating to BB with Standard &
Poor's, despite an upgrade in June.
A junk rating did not deter investors
who piled into Paraguay's Eurobond
market return, in January 2013. The
sovereign drew some $5.6 billion of
orders, allowing it to tighten the yield on
offer. Ultimately, it sold the note to yield
4.625%.
The bond traded tighter after it was
sold, and has stayed that way since. Now,
Paraguay is considering setting a second
benchmark bond in the markets.
That has a dual purpose, says Carlos
Fernández, Paraguay's central bank
governor. Raising the country's profile
internationally is the most important
rationale. The January 2013 transaction
has already made progress toward that
goal.
"Before that you had a country
that was doing a lot of good stuff but

nobody knew about it. We needed some
marketing of what we had done in the
last 10 years. The bond issue was a
perfect opportunity in order to attract
attention of all the people, to showcase
the Paraguay case," says Fernández.
"Everyone is telling us you have
a nice story to tell. Since then it is
incredible the amount of attention
Paraguay is attracting."
Paraguay's second-largest lender,
Ba2/BB- rated Banco Regional, came to
market a year after the sovereign. After
drawing some $1.25 billion in demand for
the bond sale, it increased the size of its
five-year bond by $50 million, to $300
million. The note was priced to yield
8.25%, and was placed with 146 accounts.
While opening access for the
country's companies and financial
institutions is a plus, the government
sees it as a secondary benefit to raising
its own profile in the bond markets, says
Fernández.
"Even right now as we are going to
the second issue, we are not seeing this
as a financial tool per se," he says.
"We are seeing this as a bridge
in order to attract fiscal investment,
investment in the real sector.
"We like financial investment, but

CARLOS FERNÁNDEZ, CENTRAL BANK

"THE BOND ISSUE WAS A
PERFECT OPPORTUNITY
IN ORDER TO ATTRACT
ATTENTION OF ALL THE
PEOPLE, TO SHOWCASE
THE PARAGUAY CASE"

we are using this financial investment
in order to bridge and attract all kinds
of investment. That is investment in
factories, in land, in real estate. That
is the way we are using the sovereign
bonds."
The bond follow-up could take place
as soon as July, with the sovereign keen
to take advantage of an opportunity in
markets after some volatility in the early
part of the year, says Fernández.
"It is going to be very tight before
August, because August is usually quiet;
otherwise we are going in September,"
says Fernández. "We are trying to push
and go to the market in July. It is going to
be tight, but I think we can get it. Before
the [end of ] the third quarter, for sure."
Paraguay still has some $220
million left to invest from its 2013 bond
sale, says Germán Rojas, Paraguay's
finance minister. The funds have been
allocated, but the government is waiting
for contracts to be finalized before the
money is put to work.
The second bond sale will
"complement what we have begun",
says Rojas, pointing specifically to better
energy distribution and transmission.
"In terms of Eurobonds, the [debt]
increase will depend on the management
capacity to place them on the market in
order to develop the infrastructure that
we need.
"We do not want the debt for the sake
of it, only if there are concrete plans and
projects."
The finance ministry released a
long list of use of proceeds for the
forthcoming bond sale in early June.
Improving transport links is the top
priority: the central government plans
to give some $350 million to the public
works ministry for road improvements

July/August 2014 - L ATINFINA NCE.COM 9
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