Paraguay Plans Third Bond Sale in 2016 Amid Sustained Growth

  • Finance minister cites `new interest' for dollar debt issue
  • Government in line to comply with its 2015 fiscal target

Paraguay is planning to issue a third international bond next year as the fastest-growing economy in the Americas seeks to increase visibility among investors.

The South American nation may sell as much as $740 million in dollar-denominated debt in 2016, Finance Minister Santiago Pena Palacios said Tuesday. Half the proceeds will go to refinance maturing debt and the remainder will be used to fund new infrastructure projects, he said.

“In our budget, we requested authorization to issue $740 million," Pena, 36, said during an interview at the Finance Ministry headquarters in Asuncion. “There is new interest in Paraguay."

The country, landlocked between Brazil, Argentina and Bolivia, is seeking to entice foreign investors with market-friendly polices including low corporate taxes, cheaper energy costs and improved public sector efficiency. The economy is forecast to expand 3.8 percent in 2016, the fastest among Western Hemisphere countries, according to the International Monetary Fund’s World Economic Outlook.

Paraguay, the world’s fourth-biggest soy exporter, issued its first international bond almost three years ago as the commodities super-cycle helped the economy average growth of 4.9 percent in the 10 years through 2013. The 4.625 percent dollar bond due January 2023 now yields 0.45 percentage point less than similar-maturity debt from Brazil -- which is rated one level higher at Baa3 by Moody’s Investors Service.

"It was because we wanted to put the flag of Paraguay in the international market," the minister said of the 2013 issuance. "We need to prove this improvement is here for good, not for just a couple of years."

Paraguay in August 2014 sold $1 billion of dollar bonds maturing in 2044 to yield 6.1 percent, two months after Standard & Poor’s raised Paraguay’s credit rating to Ba1, two steps below investment grade.

While the contraction of Brazil’s economy is hurting tax revenue, the government will abide with the fiscal target for the year through a combination of spending cuts and measures to boost revenue including income from the bidding process for 4G frequency licenses, Pena said. President Horacio Cartes, a tobacco magnate who came to power in 2013, supports legislation to boost cigarette taxes to increase collections, he said.

“We are in line to comply with the 1.5 percent deficit," Pena said.

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