Costa Rica considers eurobonds
February 21, 2019 |
Sovereign issuer wants to turn local debt into external debt with lower rates and longer maturities, sources say
Costa Rica's bond prices have rallied in the secondary market as the country considers selling $1.5bn in eurobonds this year to raise money to pay down local debt, LatinFinance has heard.
"I recently met with public ministry officials at the Legislative Assembly, and they were discussing how to move ahead with this eurobond, which they said would be about $1.5bn," one source said.
President Carlos Alvarado has asked the assembly to authorize $6bn in cross-border bonds over the next five years to refinance local debt with high rates and short maturities.
"The idea is that the eurobond will help shift local debt, which accounts for the bulk of the country’s 54% debt-to-GDP ratio, into external debt at lower interest rates and longer maturities," said Abelardo Medina, an economist at the Central American economic think tank Icefi.
Costa Rica's bond prices have risen as investors anticipate an upcoming bond sale.
"The notes were trading at 8.5% in October and are now at 6.8%, so they are doing really well," said a debt capital markets banker in New York. "They need to issue debt. They have been out of the market for a long time."
Costa Rica last tapped international bond buyers in March 2015, when it printed $1bn in 30-year bonds at 7.158%. It has discussed returning to the cross-border market, but it has increasingly turned to the local market to raise financing.
Fitch downgraded Costa Rica to B+ in January, citing the country's "persistently wide fiscal deficits, high near-term financing needs due to a steep amortization schedule and budget financing constraints." S&P Global cut Costa Rica to B+ the month before, criticizing the government for "poor debt management."