NEW YORK, Feb 11 (IFR) - Costa Rica has chosen Deutsche Bank and HSBC as lead managers on an up to US$1bn international bond sale that could take place as early as this month, market sources told IFR on Wednesday.
The government, expected to formally announce the mandate this week, made its selection from a short-list of six that also included Citigroup, Bank of America, JP Morgan and Barclays.
The idea is to be ready for any windows of issuance opportunity in the coming months, Juan Carlos Quiros Solano, the country’s head of public credit, said this week.
The government has been authorized to raise between US$500m and US$1bn and is expected to decide on terms now that it has picked the banks.
Costa Rica was last in the market in April 2014, when it priced a US$1bn 2044 at par to yield 7%, or 339.5bp over US Treasuries, through leads Bank of America Merrill Lynch and Deutsche Bank.
At the time it still clung to one investment-grade rating - a Baa3 from Moody’s - with both S&P and Fitch already rating it BB and BB+, respectively.
Since then, however, Moody’s has demoted Costa Rica to Ba1, citing the failure to pass reforms that would lower deficits and ease its debt burden.
In January, Fitch revised its outlook on the BB+ rating to negative, pointing to slower economic growth and worsening debt dynamics.
Despite such credit concerns, bankers believe the sovereign’s possible maturities are relatively open, including a 30-year.
Several sovereigns, including Mexico, the Dominican Republic and Colombia, have tapped 30-year money this year, taking advantage of investors’ hunt for yield further up the curve. And bankers believe that Costa Rica could do the same.
However, with its existing 2044s trading at a low dollar price of 97.75-98.75, it may prefer to print a new 2045 closer to par and avoid a lumping of amortization, given that there is already US$1bn outstanding on the 2044s.
The borrower would also likely sell a new benchmark bond if it opted for a 10-year, as the existing 4.375% 2025s are trading at a low dollar price of 90.25-91.25 - well below the OID thresholds that allow for a reopening, say bankers. (Reporting by Davide Scigliuzzo; Additional reporting by Paul Kilby; Editing by Marc Carnegie)