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Colombia targets “10% to 25%” foreign holdings of TES: Janna

Oct 21, 2013

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 LatinFinance.

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. LF



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