Colombia targets “10% to 25%” foreign holdings of TES: Janna
Colombia hopes to increase the amount of local currency debt sold internationally, despite peso depreciation cutting appetite
International investors’ holdings of
Colombia’s peso-denominated sovereign bonds could
increase "meaningfully", once the country finalizes a change to
withholding tax rules, its public credit director told
Global TES bonds — sovereign debt denominated in
Colombian pesos but settled in dollars and issued under foreign
law — have become "less attractive" for investors as
the dollar has strengthened, Michel Janna said.
"Some [investors] are reacting to the potential for currency
depreciation, and Colombia is not immune to that," he said. "Of
course we do not discard the instrument. If we see demand then
we’ll tap it again."
But he said that clarifying the details of the tax reform
first signaled last year — which cuts withholding tax
for foreign investors from 33% to 14% — could help
increase the international bid for the TES notes. The country
clarified details of the tax change earlier this month,
classifying the Seychelles, Hong Kong and the Cayman Islands as
tax havens. Investors in those jurisdictions will be subject to
a 25% withholding tax under the new framework.
"We still see the possibility of a meaningful increase in
foreign investor participation in TES bonds," says Janna, who
became head of public credit earlier this year, replacing
María Fernanda Suárez. "Foreign holders of TES
represented 3% of total holdings of TES. That increased to 7%.
A healthy level could be 10% to 25%."
Colombia covers around three-quarters of its funding needs
in the domestic market, making it more resilient to disruptions
in global markets like that seen in the middle of the year.
"Despite all the volatility, we are well placed.
We’ve already completed 93% of the 2013 funding
program," Janna said.
The sovereign borrowed $1 billion in January and came back
for $1.6 billion last month. It is still working out its
borrowing plan for 2014. After the pre-funding already done
this year, Janna says the government could look to issue $2
billion assuming conditions are acceptable.