Paraguay May Sell Debt Early ’17, Fernandez Valdovinos Says

  • Sale of up to $600 million under study: central bank chief
  • Proposal included in budget for 2017 now before congress

Paraguay may test investors’ appetite for emerging market bonds “early next year,” as the government evaluates a possible sale of as much as $600 million, central bank President Carlos Fernandez Valdovinos said.

“Giving the history of Paraguay we are sure that markets will continue to be open,” Fernandez Valdovinos said in an interview at Bloomberg’s headquarters in New York, referring to a potential U.S. rate increase before year-end. “We understand the future will be tighter, but we consider the opportunity will continue to be there.”

The country’s $27 billion economy is forecast by the International Monetary Fund to expand for a fourth straight year in 2016 while keeping inflation below its 4.5 percent target. Paraguay’s congress is reviewing a 2017 budget proposal that calls for a $600 million financing program, Fernandez Valdovinos said, with the Finance Ministry having discretion over the amount offered and whether to do so locally or internationally.

The transaction will help to fill out the county’s debt curve as Paraguay now has notes due in 2023, 2026 and 2044. “We may need something in the middle. We’ll see with our advisers, what they recommend about the maturity to which we are going to issue next year, if we issue.”

Outlook, Fed

Paraguay on March 23 sold $600 million in 10-year notes priced to yield 5 percent in a sale managed by Bank of America Merrill Lynch and Itau Bank. The issue is rated Ba1 by Moody’s Investors Service and BB by S&P Global Ratings in line with their ratings on the sovereign. The yield fell as low as 3.72 percent last month and closed on Tuesday at 3.99 percent.

Proceeds from the potential transaction will be used to roll over existing debt and capital investment, Fernandez Valdovinos said.

S&P revised Paraguay’s credit outlook from positive to stable on June 15, citing its growth trajectory, structural challenges and weaker external conditions.

Fernandez Valdovinos said he expects that the economy’s resilience and the government’s compliance with the 1.5 percent fiscal deficit cap should have Paraguay well positioned for an eventual upgrade.

The central bank forecasts economic growth and inflation at 4 percent in 2016, he said. For 2017, the bank has a preliminary forecasts for growth of 3.5 percent to 4 percent and annual inflation of 4 percent to 4.5 percent.

The central bank kept its policy rate at 5.50 percent for third consecutive meeting Sept. 21. The government on Aug. 30 proposed a $12.57 billion spending plan, up 4 percent compared with 2016.

(An earlier version of this story corrected spelling of central bank chief’s name in headline.)

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