Bonds Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Politics Uruguay
In June, amid investor enthusiasm for emerging market assets, Uruguayan officials saw an opportunity to carry out a cornerstone of its debt strategy for the year by increasing its share of its debt in local currency.With investors showing strong demand for local currency emerging market debt, Uruguay issued a $1.25 billion peso-denominated bond maturing in 2022. The transaction helped to raise $1 billion in new cash, with the remainder being used to finance a liability management operation carried out on the same day as the new bond issue.The bond sale marked Uruguay’s first-ever nominal fixed-rate global bond in local currency, helping it lower the country’s cost of borrowing, reduce its debt in dollars and diversify its investor base. The well-timed transaction wins LatinFinance’s awards for Local Currency Deal of the Year and Sovereign Liability Management of the Year. “Up until then, our global issuances were inflation linked,” says Herman Kamil, the head of Uruguay’s public debt management. “We wanted to focus on de-dollarizing some debt and we believed the conditions were right to issue a global bond in nominal pesos.”A month after the bond issue, JP Morgan announced that the global peso bond would be added to its benchmark of emerging market debt. The June bond issue saw Uruguay raise the equivalent of $1 billion in 9.875% 2022 peso-denominated paper. Bank of America Merrill Lynch, BBVA and Morgan Stanley started the initial price talk in the low-to-mid 10% range, before finding space to tighten yields at guidance to 10%. Orders were 4.5 time oversubscribed. Uruguay’s economic fundamentals also provided a compelling backdrop for the transaction. The country’s inflation rate had steadily declined. In April, 12-month inflation rate registered within the central bank’s target range for the first time in nearly seven years. The government in May also doubled its 2017 forecast for economic growth to 2%. As part of the issue, Uruguay also carried out an intra-day liability management operation where it accepted 1.2 billion pesos ($42.1 million) in a tender offer for the outstanding 7.8 billion pesos the sovereign had in 2018 CPI-linked bonds.The successful bond sale highlighted a year that saw the government complete its domestic and international funding in local currency. Uruguay returned to the international markets in September with a 10-year nominal fixed rate local currency bond.Kamil says Uruguay will continue to look at local currency issues in 2018, but also plans to return to the dollar bond market. “It’s something we want to continue to develop,” Kamil. “But we also think it’s important to go back to the dollar market because we believe the dollar curve needs a refresh.” LF
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