LIMA, Oct 9 (IFR) - Paraguay is looking to raise up to US$740m in the foreign bond markets next year amid hopes that a boost to its credit standing is on the cards, the country’s finance minister told IFR.
The landlocked South American country, which printed its debut international bond only two years ago, is determined to become a regular issuer in the US dollar market as it reaps the benefits of an improving credit story.
Even as its main trading partner Brazil is marred in recession, Paraguay is expected to grow by 3.7% this year, according to government projections.
Even with the IMF’s lower forecast of 3%, the country is still likely to enjoy one of the highest growth rates in South America this year.
The sovereign’s credit standing has been bolstered by four rating upgrades over the last two years. Meanwhile the yield on its debut 2023s stands at 4.9% - just north of the 4.17% quoted on the 2024s issued by investment-grade Colombia (Baa2/BBB/BBB).
“Rates are performing relatively well. We are 100bp tighter than Brazil and we are very close to Colombia,” Finance Minister Santiago Pena Palacios told IFR this week on the sidelines of the IMF meetings in Lima.
“I think this is giving rating agencies something to think about.”
Standard & Poor’s and Fitch, which both rate Paraguay BB, still have to catch up with Moody‘s, which has the sovereign just one notch below investment grade at Ba1.
The government is seeking congressional approval to raise US$740m, part of which may come from the local market, where the sovereign’s yield curve extends up to eight years with an interest rate of around 9%.
In the international markets, the US dollar remains the sovereign’s currency of choice.
That’s partly because the government receives some US$700m in annual royalties from hydroelectric power plants it shares with Argentina and Brazil, providing a natural buffer for the currency exposure.
Half of the proceeds from next year’s planned bond sale will be used to finance new investments, while the remaining will roll over existing maturities. (Reporting by Davide Scigliuzzo; Editing by Paul Kilby)