Panama Said to Offer $1.25 Billion of Government Bonds

Panama is offering $1.25 billion in global bonds, its biggest sale in four years, as President Juan Carlos Varela delays projects to contain a widening deficit.

The Central American nation is selling 10-year dollar bonds to yield about 1.5 percentage points more than U.S. Treasuries, according to a person familiar with the matter who asked not to be identified because of a lack of authorization to comment. Bank of America Corp. and Citigroup Inc. were hired to manage the sale.

Deputy Economy Minister Ivan Zarak said last week that the government would delay $650 million of “high-risk” projects, including a convention center and hospital, started under President Ricardo Martinelli’s administration. The budget deficit widened to 3.2 percent of gross domestic product in the first half of the year. Varela, who took office in July, projected economic growth of 6.5 percent in his 2015 budget, down from the 7.2 percent forecast by the International Monetary Fund for this year.

Panama is the second Central American nation to offer bonds in less than a week, with El Salvador selling $800 million in 12-year notes Sept. 11. Companies around the world are increasing bond sales after Federal Reserve Chair Janet Yellen said last month that the central bank may raise interest rates sooner than currently expected if progress in the economy “continues to be more rapid than anticipated.”

Delayed Projects

While Varela’s government said it would delay some infrastructure projects, it’s continuing an extension of the country’s subway system, Central America’s first, and is expected to complete a $5.25 billion expansion of the Panama Canal by the end of next year. The $20 billion budget Varela sent Congress projects the deficit will be 2 percent of gross domestic product, the maximum allowed under the country’s fiscal-responsibility law.

Panama’s dollar bonds have returned 11.7 percent this year, above the 8.4 percent average for emerging markets, according to JPMorgan Chase & Co.’s EMBIG index. The country of 3.6 billion people is rated BBB, the second-lowest investment-grade ranking, by Standard & Poor’s. That puts the $43 billion economy in the same category as Spain and the Philippines.

Before it's here, it's on the Bloomberg Terminal.