Uruguay eyes Samurai bond sale

Uruguay eyes Samurai bond sale

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Uruguay has signed a three-year memorandum of understanding with the Japan Bank for International Cooperation (JBIC) to work together on the sale of yen-denominated bonds, a move aimed at raising funds to contend with the impact of the coronavirus on the economy.

"Given the extraordinary situation that the republic is currently going through, it is necessary to go to new sources of financing, including the financial market in Japan," the Economy Ministry said in a resolution signed by President Luis Lacalle Pou and Economy Minister Azucena Arbeleche.

Over the past few months, the government has discussed the possibility of JBIC participating as "an investor in future sovereign bond issues in yen by Uruguay" and also arrange investments by Japanese companies in projects, including the use of hydrogen as a clean source of energy, according to the resolution.

In May 2011, when Uruguay last sold yen-denominated notes, it issued JPY40 billion ($493 million at the time) in 10-year bonds with a coupon of 1.64% and a 95% guarantee from JBIC. It also had JBIC support when it sold JPY30 billion worth of 10-year bonds in its second trip to the Samurai bond market in March 2007. Uruguay first sold sovereign notes in the Japanese bond market in 2001.

As the number of confirmed coronavirus cases in Uruguay has surged to 493 from just one in early March, according to the Johns Hopkins Coronavirus Resource Center, the government has focused on raising funds from multilateral lenders to deal with the pandemic.

In late March, the country borrowed $125 million from the Inter-American Development Bank (IDB) to respond to the health crisis and support efforts to revive the economy, including by providing credit to small and medium-sized businesses.

Arbeleche also said in late March that the country was seeking $2.5 billion in credit from multilateral lenders such as the IDB, the World Bank, the South American development bank CAF and Fonplata, a regional development bank for the Río de la Plata basin.

With the decline in international interest rates over the past few months, according to Arbeleche, Uruguay has the opportunity to issue bonds at lower costs. The 10-year US Treasury bond yield, an indicator of international rates, dropped nearly 70% to 0.595% on Thursday from 1.921% at the start of the year.