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Panama outlines bond plans

Apr 4, 2017

Finance Minister Dulcidio De La Guardia tells LatinFinance that Panama will raise $1.25bn in the cross-border market

Aaron Weinman

Keywords: Panama bonds Dulcidio De La Guardia

Panama aims to raise $1.25bn in the cross-border bond market this year and is also in talks for a hybrid transaction to finance the construction of the fourth bridge over the Panama Canal, the country’s finance minister told LatinFinance.

The Central American sovereign issuer has approximately $2.7bn in funding needs for 2017, including $800m to refinance maturing debt, Dulcidio De La Guardia said at the IDB-IIC Annual Meeting in Asuncion, Paraguay. Panama also plans to print $700m in the local capital markets, he said.

Some Central American countries took advantage of market conditions in Q1 to kick off their fundraising plans for 2017, but Panama was absent from the cross-border market. With plenty of cash on hand, the country preferred to focus on consolidating its cash balances into a single treasury account, rather than raise more debt, De La Guardia said.

"We have high balances that we are slowly bringing into a single treasury account," he said. "It does not make sense to get more debt and pay interest when you have cash in the bank."

But with $800m in debt maturing this year, Panama will work on lowering its cost of funding, De La Guardia said. "We do not want the average maturity of Panamanian debt to be less than 10 years," he said. "We want to make sure that every year the average [cost of debt] Panama pays is less than [previous years]."

Other sources said Panama could raise at least $1bn in the cross-border market as long as market conditions permit. The investment grade rated sovereign raised $1bn from the sale of 12-year 3.875% cross-border bonds in March last year with Credit Suisse and Morgan Stanley leading the transaction.

Panama’s dollar economy presents little need for the country to explore bond issues in different currencies, but De La Guardia said Panama has debt in Japanese yen, including a ¥281bn ($2.53bn) loan from the Japan International Cooperation Agency (JICA) to finance Line 3 of the Panama City metro.

"We have to make up our mind whether we want to hedge [the JICA loan]," De La Guardia said. "We prefer dollars but we have looked from time to time at other currencies."

Panama has several infrastructure projects in need of funding, and De La Guardia said most of them will be financed with multilateral loans. Last month, for example, Latin American development bank CAF approved $245m in loans for education and water investments in the country.

The fourth bridge over the Panama Canal will be an "off balance sheet transaction" with a combination of mini-perm loans and a bond issue. De La Guardia said Panama has hired a bank to coordinate the financing but he did not say which one.

"We want to make sure that all projects initiated in the previous administration are finished under the Varela administration," he said. "We do not want to give the next administration the same issues we faced when we took office."

De La Guardia said that when President Juan Carlos Varela took office in 2014, several infrastructure projects came with disputed contracts or with no budget attached. He said the Varela administration wants to complete the pipeline before 2019. "We want to be responsible in terms of what we pass to the next administration," De La Guardia said.

The government outlined plans in November to invest up to $10bn in public works projects, including two subway lines and the fourth canal bridge.


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