Colombia’s finance ministry is looking to take advantage of favorable exchange rates by swapping dollar debt into peso liabilities, starting with up to $2bn in multilateral debt. The government has a 6-month window in which it can enter into cross-currency swaps on certain issues of debt totaling $2bn, Maria Catalina Escobar, head of external capital markets at Colombia’s finance and public credit ministry, tells LatinFinance. The specific debt issues to be swapped will be announced imminently, and the timing and total amount will be at the government’s discretion. Escobar explains that the banks involved, which could include Colombian institutions in addition to the usual international counterparties, will be chosen in an open bidding process at the time of the individual transactions. Colombia’s total dollar debt stands at about $20bn, according to the ministry. The government is not planning to raise any new debt this year, says Escobar.
Category: Regions
LatAm Borrowers Could See China Option
Once China tackles its currency and liberalizes capital flows it might become a tempting place for LatAm borrowers, since local currency borrowing will provide some hedge for commodity exporters, says Michael Pettis, professor of finance at Guanghua school of management at Peking University in Beijing. “China’s bond and stock markets are still rudimentary although a lot of progress has been made in their development,” Pettis tells LatinFinance. “Both are growing in importance as a source of funding for corporations, although the Chinese investor base is still highly speculative and not particularly rational at allocating capital to its most productive use,” he adds. The fast expanding Asian nation is a huge buyer of commodities and looking to acquire throughout LatAm. “There is a sense in China that it is imperative for national companies to secure access to commodities,” says Pettis. “Securing access to minerals and agricultural products is a key political objective,” he adds, also pointing to infrastructure as a target. But Pettis worries about China’s long-term impact, particularly as it binds Latin America to being little more than a commodity exporter. (For complete interview, see www.latinfinance.com.)
Peru Seen Holding at 5.50%
Peru’s central bank is expected to keep the reference interest rate unchanged at 5.50% at Thursday’s policy meeting, according to Merrill Lynch. “With inflation moderately decelerating last month – likely marking the peak this year and after raising rates and reserve requirements last month, we think the [Peruvian central bank] will step back this month but maintain its hawkish bias,” Merrill adds.
Banco Mercantil Shrugs off Bolivia Vote Violence
Violence around a referendum in Bolivia has not harmed the domestic banking system, Juan Carlos Salaues, executive vice president of Banco Mercantil Santa Cruz (BMSC) in La Paz, tells LatinFinance. “The banking system in general and our bank as part of that system has been vaccinated throughout the years against this type of event,” Salaues says. “These vaccines include managing our liquidity index with better ratios, a bigger umbrella for harder rain.” Despite volatile political events over the last 2 years, the economy has actually improved, the banker adds. However, BMSC is carefully monitoring the situation. “Yesterday’s event is another element of a political and institutional process that we have to take into consideration in order to plan our activities in the country,” Salaues adds. BMSC received $250m in deposits in 2006, Salaues says, taking the overall deposit total to $1.3bn. “Our growth is practically of the size of all the mid and small sized banks in the country,” he adds. BMSC is focused on opening more branches throughout the country and plans no further M&A activity as it is still digesting the 2006 merger of Mercantil and Banco Santa Cruz. “Even though we have the financial backbone to do another acquisition, I believe we need to further the consolidation with Santa Cruz,” Salaues adds.
Bolivia Crisis May Bring Nationalization U-Turn
The growth of the opposition to the government of Evo Morales, exemplified by Sunday’s Santa Cruz referendum, could make Bolivia reconsider the nationalization of its energy industries, according to Alfredo Coutino, senior economist at Moody’s Economy.com. “The nationalizations of Morales have already caused a contraction of private investment in the country and at the same time have caused foreign investors to be cautious,” he adds. However, there is the risk that escalation in the crisis may undermine an economy that is already threatened by leftist rule. The current could worsen as the departments of Beni, Pando, Tarija and Chuquisaca hold their own referenda on autonomy in coming days. “Bolivia is in a transition phase,” says Juan Carlos Hildago, project coordinator for LatAm at the Cato Institute. “We have to wait and see what happens when the other departments have their own referenda. At that point, there has to be a new negotiation between the government and the opposition to see if Bolivia remains one of the most centralized countries in the region or effectively moves towards decentralization,” Hidalgo adds.
Durango Buckles Under Debt Pressure
S&P has put the B+ rating of Mexico’s Corporacion Durango on CreditWatch with negative implications and warns of significant pending downgrades amid deteriorating debt ratios. “They have too much debt, and are getting caught by higher costs,” says an analyst at a major Wall Street shop, adding that the 2017 was trading around 58-60. “Right now their Ebitda is less than their interest expense,” the analyst adds. The S&P watch follows last week’s demotion from Fitch, and S&P predicts that key financial ratios will continue to exceed assumptions based on the current rating. “We will need to reevaluate the company’s financial and operational strategies to resolve the CreditWatch. Any downward rating action would not be limited to one notch,” says S&P analyst Juan Pablo Becerra. The Mexican paper and packaging firm’s total debt to Ebitda ratio hit 6.8x March 31, versus an S&P forecast of around 3.8x by year-end 2008. Negatives include high debt, a moderately aggressive financial policy, and natural risk associated with the paper industry’s cyclicality. This is partially offset by Durango’s leading position in the containerboard and packaging industries, as well as vertical integration in Mexico. Fitch cut Durango to B minus from B and its 2017 notes B/RR3 from B+/RR3, implying a 51%-70% recovery in the event of default. The ratings remain on rating watch negative. The firm has $14m in short-term debt and $524m in long-term debt. Only last year, the company was planning to buy back bonds in 2008 to spruce up the balance sheet.
Bolivia Referendum Sparks Violence
A vote on autonomy for Bolivia’s richest region, Santa Cruz, sparked violence Sunday. President Evo Morales and indigenous groups oppose the referendum, which according to wire reports could give rightist leaders more control of taxes, policing and natural resources. Bolivia last week seized four energy companies and a telecom, aggravating a recent deterioration in the country’s investment climate.
Colombia Fines Local Rating Agency
Colombia’s regulator has fined local ratings agency BRC investor services COP80m ($45,000) for failing to update ratings on bond, according to the ruling. In a 27-page document, Colombia’s Superintendencia Financiera explains that the lack of an update for ratings on bonds issued by Titulos Banano Colombia hurt the local market. The entities issuing the bonds are bankrupt Colombian banana producers. This is the first time such action has been taken in the country, according to local media. In February this year BRC signed a technical services agreement with Moody’s, according to BRC’s website.
IMF Moves Singh to Asia
The IMF’s man in LatAm, Anoop Singh, has been appointed director of the Fund’s Asia Pacific department. IMF MD Dominique Strauss-Kahn, who did not name a successor, says the move is part of an “ongoing refocusing effort.” Singh, currently director of the Western Hemisphere department, takes over from David Burton who is leaving the fund in the “voluntary separations phase” of the IMF’s organizational restructuring. There will be a period of transition before the new appointments become effective, which the fund has yet to define.
Peru Sees Marginal Inflation Hike
Inflation in Peru – the fastest growing LatAm economy – slowed to 0.15% in April, a considerable drop from the previous month’s 1.04%, according to the Peruvian government statistics institute INEI. This is below market forecasts of 0.35%-0.40%, says Carola Sandy, analyst at Credit Suisse. Year-to-date, inflation in the Andean country adds up to 2.34%, the institute reports. External pressures could aid a further decline in Peru’s inflation. “I think what’s important for Peru is the trend in food inflation globally,” Sandy says. “We are expecting food inflation to decline and this should help inflation in Peru to continue to decline,” she adds.