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Another Latin American country to issue debut bond
Honduras is looking to become the next in a series of Latin American sovereigns to issue international bonds for the first time
Barclays and Deutsche Bank are managing the deal for the Central American country, which has long-term debt ratings of B2/B+ but was put on negative outlook by Moody’s and Standard & Poor’s last week.
The Honduran Congress has authorized an issue of up to $750 million as the government struggles to pay bills to domestic service providers. The government has estimated that 2012 saw the budget deficit grow to 6%, while interest payments counted for 10% of government revenues last year — up from 3% in 2008.
Honduras, which has been receiving debt relief since 2005, will meet investors from Monday to Thursday, with Friday penciled in for pricing, according to bankers close to the transaction.
The sovereign is yet to decide on a final size or maturity, although a banker close to the deal said a 10-year bond — such as those recently issued by first-timers Bolivia and Paraguay — “would likely be the path of least resistance”.
EuroWeek revealed on Thursday that an unusual sovereign name was planning a debut bond issue.
Moody’s said the negative outlook reflected its concerns that a general election later in 2013 would not allow for improvement in Honduras’ fiscal position after deterioration last year. Furthermore, foreign direct investment only partially covered the current account deficit of 10% of GDP. In 2009-11 the current account deficit averaged 6%.
Fiscal “slippage” occurred especially when an International Monetary Fund program expired in March 2012, meaning Honduras lost support from multilaterals, according to Moody’s, which is skeptical about the sovereign’s chances of negotiating a new agreement this year.
The IMF has said that Honduras faces significant fiscal challenges that a bond issue will not solve.
“The planned issuance of a sovereign global bond would help the government alleviate recent financing pressures and reduce payment arrears, but would not help strengthen the fiscal position and would present other challenges, including the sterilization of liquidity by the Central Bank,” said the organization after a visit to the capital Tegucipalga in December.
‘UNAFFORDABLE’
And the Honduran government’s bond issuance plans have been criticized in parts of the local press, with former head of the Central American Bank of Economic Integration (BCIE) claiming to La Prensa newspaper that sovereign bonds would be “unaffordable”.
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As the sovereign’s access to international funding was temporarily cut off following a coup d’état in 2009, Honduras had to increase its reliance on internal debt markets, which S&P describes as “shallow”.
According to the Secretariat of Finance, total public debt has grown from $3.043 billion in 2008 to $6.397 billion at the end of 2012.
Paraguay, rated one notch better than Honduras at Ba3/BB-, sold a $500 million 10-year deal to yield 4.625% in January, despite ranking 150th out of 175 in terms of public sector corruption according to the 2012 Corruption Perceptions Index prepared by Transparency International.
Bolivia (Ba3/BB-/BB-), the only South American country with lower GDP than Paraguay, also achieved a sub-5% yield on its return to the international bond markets last October after a 90-year absence. South America’s other land-locked nation sold $500 million of 10-year notes at a yield of 4.875%.
More recently in February, Ba1/BB+/BB+ rated Guatemala sold its first deal since 2004, raising $700 million of 15 year money yielding 5%.
Honduras debt-to-GDP ratio of 35% is moderate, but growing, as is the government’s cost of funding.
To read the article in full, go to Euroweek.com
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