Colombia issued its first peso-denominated global bond this week, in a groundbreaking move to reduce dependency on the dollar and diversify its investor base. The country is the first Andean nation to issue global bonds in local currency, and was largely motivated by a weak dollar and a sound domestic economy.
High demand pushed the offering to $375 million, from an initial value of $250 million. The bonds, due to mature in March 2010, have a yield of 11.875%. The rising value of the peso, which is up 8% against the dollar since January, was one factor that attracted investors to the deal.
“If the peso holds or appreciates, investors have an additional kicker besides the coupon,” Enrique Alvarez, Latin America fixed income strategist at IDEAGlobal told the Financial Times.
Standard and Poor’s rating agency assigned its 'BB' long-term foreign currency rating to the to the Colombian treasury notes. The agency also affirmed its 'BB' long- and 'B' short-term foreign, and its 'BBB' long- and 'A-3' short-term local currency sovereign credit ratings on Colombia. Outlook for these ratings is stable.
Prospects are good for economic growth and the continuation of a fiscal policy that should help the government come close to achieving its overall public deficit target of 2.5% in 2004-5, said Richard Francis, S&P analyst, in a statement.
"The country's economic growth prospects are also improving, with economic growth now projected to rise by over 4% in 2004 and a similar level in 2005," said Francis.
Felipe Sardi, Colombia’s general director of public credit and national treasury, told the FT that the deal benefited all sides. “Local investors see yields decrease and, for foreigners, it’s an efficient way of accessing the local market, “ said Sardi. “It’s a good signal for our dollar and euro bonds too that we’re reducing foreign exchange risk.”