Although its financing needs are currently met, Panama's government may decide to tap debt markets this year in a liability management plan for a $932 million bond coming due in 2015, a senior official in charge of public credit told Emerging Markets.
The country's Finance Minister Frank de Lima had told Emerging Marketsearlier on the sidelines of the Inter-American Development Bank meeting that there was no need for a bond issue as financing was covered, and that he was confident that market conditions would remain the same.
But there is still a good chance, according to Dario Espinosa, the government’s director of public credit, that the government may decide to tap local markets this year in a liability management plan for the $932 million bond coming due in 2015. He said that if liquidity, appetite and conditions were right, a combination of local and global bonds could be in the cards. The government carried out a similar operation on the January 2015 issue to re-profile $500 million of that bond.
“We have been turning to capital markets, primarily the local market, for funding. We are looking to extend duration with the possibility of a $500 million benchmark that would be for 15 or 30 years,” he said.
Espinosa repeated the finance minister's comments that financing for this year was basically covered with disbursements from multilaterals, including the Venezuela-headquartered Development Bank of Latin America (CAF), the Inter-American Development Bank (IDB) and the World Bank, as well as $362 million from France’s Coface and Spain’s Cesce that is being used for the $2-billion subway system under construction in the capital.
“The need for global bonds is very low compared to last year. Last year we emitted locally for the first time in history [when] we placed a 10-year bond for $1.36 billion,” said Espinosa. Slightly less than half of that issuance was in the local market. Espinosa added that the Panamanian government wanted to take advantage of its dollarized economy and strong financial sector to become a regional hub for capital markets.
Panama has the right conditions and offers lower costs for countries and firms in the region looking to launch global bonds, he said.
“Our dollarized economy, political stability and strong banking and regulatory systems provide us with the infrastructure to become a leader in capital markets. Fees and legal costs here are much lower than in the United States,” he said.
Becoming a hub for bond emissions is the final step in a process underway over the past few years that has included the creation of a successful market-makers program. In 2009, only $30 million worth of Panamanian paper was acquired locally. The number jumped to more than $600 million last year after the launch of the market-makers program the previous year. As a result, 25% of the country’s total debt is held locally, compared to 8% in 2009.
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