Paraguay comes to bond market for coronavirus funding
April 24, 2020 |
Sovereign issuer raises $1 bln for an emergency spending plan worth close to 4% of GDP
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Paraguay raised funds for the fight against the coronavirus on Thursday, selling $1 billion worth of bonds in a deal that was more than seven times oversubscribed, sources told LatinFinance.
The federal government will use the money "to address the issue of the pandemic and all the measures the state has taken to mitigate the economic impact," said Humberto Colmán, undersecretary of the economy at the Finance Ministry.
The ministry said in a statement that it placed the new 10-year notes at par to yield 4.95% and scheduled the principal payments for the last three years of maturity.
According to a source involved in the deal, Paraguay started with the initial price talk in the mid-5% area. It set guidance at 5%, plus or minus five basis points, and then launched the deal to yield 4.95%, the source said. The bookrunners were Citi, Itaú BBA, Goldman Sachs and Santander.
The Finance Ministry said market conditions had increased financing costs for all countries, but it claimed the rise was less severe for Paraguay, "which reflects a better valuation by investors."
The government is allowed to borrow up to an addition $1.6 billion this year as part of a COVID-19 emergency funding law that Congress passed in March. Paraguay's balanced budget laws had capped the fiscal deficit at 1.5% of GDP, but Fitch Ratings estimated that the emergency spending plan was worth close to 4% of GDP.
As a result, Paraguay's fiscal deficit will likely rise to 5.9% of GDP before it falls to 4.5% in 2021, according to Fitch.
According to the UN Economic Commission for Latin America and the Caribbean, known as CEPAL, Paraguay had one of the lowest debt-to-GDP ratios in the region at the end of last year. But, given the importance of agricultural exports, Paraguay has been severely affected by the economic downturn in China, CEPAL said in a report on Tuesday.
Paraguay previously came to the bond market in January this year, when it tapped its 5.4% 2050 notes for $450 million at 4.45%. Before Thursday's deal, Paraguay had $4.5 billion outstanding in dollar-denominated bonds, according to data provider Refinitiv.