28 de julio de 2014 / 21:04 / en 3 años

Paraguay defies Argentina worries with new bond

NEW YORK, July 28 (IFR) - Paraguay decided to test LatAm resilience Monday, roadshowing a new bond as the market swirls around a looming debt default by Argentina.

Rated Ba2/BB/BB-, Paraguay will kick off investor meetings Tuesday, just a day ahead of a deadline for its neighbor to plunge into its second default in a decade.

Bankers and investors both said they expected no contagion from events in Argentina, where the sovereign is locked in a bitter battle with holdout creditors.

“Paraguay is a trading partner of Argentina and the two countries are of course close geographically,” said Carl Ross, head sovereign analyst at Boston-based asset managers Grantham Mayo van Otterloo.

“But the market is looking at Argentina as an isolated situation.”

At worst, traders expect an Argentine default to lead to some weakening in the region’s secondary market bond prices.

Paraguay should be able to price the new issue not far off its only international bond outstanding - a 4.625% US$500m 2023 note issued in early 2013.

That note was quoted at a cash price of around 101.5 mid-market, equivalent to a G-spread of around 220bp and a yield of 4.50%.


Since its debut in the international capital markets a year and a half ago, Paraguay has won over accounts with a pledge to prudent economics and increased investment.

“It’s a pretty strong Double-B credit, especially if you look at the strength of the agricultural and electricity sectors and at the sovereign balance sheet,” said Ross.

“There are some offsetting traits on the institutional and political side of things, but overall it’s a decent story.”

Citing encouraging signs on implementation of reforms, Moody’s and Standard and Poor’s both upgraded Paraguay’s ratings by one notch this year, to Ba2 and BB respectively.

“I wouldn’t be surprised to see another positive rating action over the next six to 12 months given the way Paraguay’s debt dynamics are behaving,” said Sean Newman, senior portfolio manager at Invesco.

“They are trying to diversify the economy away from the agricultural sector, and they have done a good job attracting foreign direct investment from regional players.”

Economic activity, which has historically been volatile due to dependence on the agricultural sector, accelerated sharply in 2013, with real GDP growing by a record 13.6%.

Economic growth is expected to decline to 4.8% in 2014, according to IMF estimates, but the country’s debt-to-GDP ratio should remain under 15%, well below similarly rated peers.

Bank of America Merrill Lynch and JP Morgan are arranging the investor meetings, which will take place in Los Angeles, Boston, New York and London until August 1. (Reporting by Davide Scigliuzzo; Editing by Paul Kilby and Natalie Harrison)

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