Uruguay will mandate banks to manage a new global bond issue in the coming days, finance minister Danilo Astori has told Emerging Markets, with at least three Latin American governments preparing to raise international debt before the year is out.
Emerging Markets understands that Peru could return to markets in two to three weeks, while Colombian finance minister Mauricio Cárdenas said earlier this week that his country was looking to raise a further $1.5bn this year in order to beat the US Federal Reserve’s rate rise. This would imply completing its 2016 funding before the end of 2015.
Finally, although Chilean finance minister Rodrigo Valdés said his country was not yet ready to return to bond markets, he added that it could be so before year-end to fund its capitalisation of copper company Codelco.
Uruguay’s Astori said that the Baa2/BBB/BBB rated country’s next issue would happen “in the short term” and certainly this year. The government is in discussions with potential bookrunners, and is yet to decide on an amount or maturity.
“Although we are in very good situation in terms of both amount and composition of debt, it is very convenient to prefinance ourselves and — above all — be prepared to mitigate risks,” said Astori. Debt-to-GDP of 30% is “the lowest in modern Uruguayan history”, he added.
This bond will be in dollars, though the sovereign is examining the possibility of making its debut in the euro-denominated market on its following trip to the international market. Uruguay last issued internationally in February, when it tapped 5.1% notes due 2050 for $1.2bn.
RATINGS UPGRADESDespite severe economic troubles in neighbouring Argentina, Uruguay grew at an average of 6% from 2005-2010 and 5% from 2010-2015. Even as Brazil, another major trading partner, has fallen into recession and slipped down the rating spectrum, Uruguay — undertaking a deliberate diversification of its trading partners — has continued to receive upgrades from rating agencies.
The small country’s five-year CDS trades at around 300bp, inside even better rated nations Colombia and Mexico.
Minister Astori admitted that higher US interest rates would lead to higher borrowing costs, but said Uruguay was “prepared”.
“Uruguay is not a country that has had large positive or negative flows of speculative capital,” he said. “In the first six months of this year alone we received FDI worth 2% of GDP.”
Uruguay has not escaped LatAm’s slowdown, and the minister predicts 2%-2.5% of growth this year before an average of just 2.7% for the next five years, starting in the 2%-2.5% range but closing in on 3% by 2019.
There are question marks over the fortunes all three of Uruguay’s principal export destinations: China (20%), Brazil (17%) and Argentina (7%). Brazil and Argentina also bring in around 80% of Uruguay’s tourists.
But the minister believes that most of the effects of its neighbours’ troubles have already been absorbed. He was confident that, even with a slowdown, growth in China remained at levels that would not hurt the Uruguay.
“Previously we reduced poverty from 40% to 10% and real wages have increase 47% in 10 years,” said Astori. “Although this progress will not be reversed if our growth projections are met, we must aspire to beat these projections because Uruguayans are expecting further social improvements.”