Banco Continental Paraguay has decided against settlement of its $200m 2017 bond priced last week, after the impeachment of President Fernando Lugo caused a secondary market slide. The 8.875% coupon bonds, priced at par last week, were trading at 93.00-94.00 before news broke of the cancellation. “The cancellation is due to a decision by the bookrunners. We will wait until the market settles to revisit the international bond market. The deal was pulled because of political aspects and not because of the financial viability of the bank,” CFO Eduardo Cespedes tells LatinFinance. The official says the bank could revisit the bond market within a few months. S&P placed ratings of multiple Paraguayan banks on credit watch with negative implications, including Continental’s BB minus mark, following a similar rating action on the Republic of Paraguay. “The credit watch listing follows President Fernando Lugo’s recent impeachment and reflects the rising credit risks resulting from the possible political and economic ramifications of the abrupt change in government and the exit of Finance Minister Dionisio Borda,” the agency says.
Category: Paraguay
Paraguay on Negative Watch: S&P
S&P has placed Paraguay’s BB minus rating on CreditWatch negative, it says, following the impeachment of President Fernando Lugo last week. The move “reflects the rising credit risks due to the possible political and economic ramifications of the abrupt change in government, and the exit of key economic officials in the government – specifically Finance Minister Dionisio Borda and Jorge Corvalan, president of the central bank,” the agency says. In addition, Paraguay’s main trading partners, Argentina and Brazil, have threatened economic sanctions that, if put in place, would damage economic prospects and lead to worsening fiscal and external indicators. S&P expects to make a judgment on the rating within 3 months.
Paraguayan Bank Sidesteps Volatility
Banco Continental Paraguay has priced a $200m 2017 bond, representing the bank’s debut in the international bond market, and the first high-yield corporate issuance from LatAm since Peru’s Ajecorp last month. Whether the deal indicates a true reopening for LatAm high-yield has yet to be seen, but scarcity value and a $450m book allowed the senior unsecured deal to price amid continued uncertainty in the market. Starting at 9%-area guidance, Continental tightened to 8.875% before pricing the Ba3/BB minus bond at par with a 8.875% coupon. The new bond was trading up 0.375 points in the grey Wednesday afternoon, according to a trader. There is some scarcity value and juice there,” says an investor following the trade. “The deal shows that there is appetite for non-investment grade names, and that the market is still open,” says a banker following the deal. The issuer was being comped against BBVA Paraguay’s (B+/Ba3/BB minus) 2016, which recently traded in the mid-7% range. “The deal was important for the bank and for the country as Banco Continental Paraguay looks to improve its credit rating and return to the debt capital markets in the future,” says a source close to management. Proceeds will be used to fund medium and long-term loans to customers and for general corporate purposes. North American buyers took 53% of the sale, Europeans 16%, LatAm accounts 15%, and Asia and other regions 13%. The transaction was heard backed by reverse inquiry from the US, and follows a roadshow in Europe, Latin America and the US. Bank of America Merrill Lynch and Citi managed the sale. Banco Continental services the agribusiness, industrial, commercial and services sectors, and is the second-largest financial institution in Paraguay in terms of net income, total deposits and shareholder’s equity, and third-largest in terms of total assets. The International Finance Corporation (IFC) owns 15.73% of the bank.
Paraguayan Bank to Test DCM
With new issuance conditions still somewhat uncertain, Banco Continental Paraguay is planning to start meeting fixed-income investors this week in Europe, Latin America and the US. A deal, to be the issuer’s first in the international markets, could follow if conditions allow. The Ba3/BB minus bank begins in Montevideo Wednesday, visits London and Santiago Thursday, Switzerland and Lima on Friday, and Los Angeles and Miami the following Monday, before wrapping up in New York June 19. The investor circuit suggests that Banco Continental may be eyeing $100m-$200m in a 5-year, 7-year or 10-year bond, though no official details have been released. Guatemalan Banco Industrial’s 2021 subordinated bond (Ba2/BB) and BBVA Paraguay’s (B+/Ba3/BB minus) 2016 are two bonds highlighted by bankers and investors as reference points for Banco Continental. Banco Industrial and BBVA Paraguay were trading Monday to yield 7.44% and 8.14%, respectively, according to a trader. Investors have been saying that markets are open only to top investment grade names if they can pick the right window. The potential transaction is heard to be backed by reverse inquiry from the US, with full meetings scheduled with both retail and institutional interest. Though plans announced over the weekend for a Spanish rescue package have improved sentiment, Greek elections looming this weekend mean borrowers run the risk of the mood suddenly turning against them once they have announced a deal. Other would-be issuers have decided to hold off on announcing transactions until after the elections. Some investors are open to hearing Banco Continental Paraguay’s story, while others say timing is not yet right for a high-yield first-timer. “I haven’t seen the credit fundamentals but this represents scarcity value, and there are not too many corporates out there,” says a London-based portfolio manager. Irrelevant of its sub-investment grade status, participation in the issuance will depend on the quality of the ba
Paraguay to Receive IDB Loan
Paraguay has agreed to receive a $100m loan package from the IDB aimed at its public administration capabilities, it says. The package consists of 3 parts. A $51.6m 30-year term loan with a 6-year grace period has an interest rate based on Libor, and comes from the IDB’s ordinary capital. A 16-year $35.5m loan coming from the IDB’s ordinary capital flexible facility with a 9-year grace period and also has a Libor-based interest rate. A $12.9m 40-year term loan from the multilateral’s fund for special operations comes with a 0.25% interest rate. Proceeds will be used for social spending concerns and the modernization of systems in the government’s public administration.
GNB Sudameris Snags Latest HSBC Divestment
Colombia’s Banco GNB Sudameris has agreed to buy HSBC’s operations in Colombia, Uruguay, Peru and Paraguay, for $400m, HSBC says. HSBC had previously announced it was in talks to sell the assets. Though the Colombian portion is small – 15th in assets with just over $1.5bn, representing 1.7% market share – it represents the latest asset to change hands in a rapidly shifting landscape where foreign players have paid high multiples to enter. The businesses to be sold consist of 62 branches across the 4 countries and a gross asset value of $4.4bn. “This will not change the market much. It is basically a strategic move to become more relevant in a few different countries,” says a Bogota-based FIG equity analyst. GNB is paying cash, and the Colombia and Peru portion is expected to close in the fourth quarter and the Uruguay and Paraguay portion in the first quarter of next year. The sale is part of a continued process to shed non-core assets in the region. In January, HSBC sold operations in 3 Central American countries to Colombia’s Davivienda for $801m, before selling its insurance business in Mexico and Argentina to France’s AXA and Australia’s QBE Insurance Group in March as part of a $1.23bn package also including Asian assets.
HSBC Discusses Further LatAm Asset Sales
HSBC is in talks to sell its operations in Colombia, Peru, Uruguay and Paraguay, it says, as part of a continued process to shed non-core assets in the region. The bank has been scaling back in countries where its presence is too small or in those that offer too little growth potential. HSBC does not offer further details about the discussions. In January, HSBC sold operations in 3 Central American countries to Colombia’s Davivienda for $801m, before selling its insurance business in Mexico and Argentina to France’s AXA and Australia’s QBE Insurance Group in March as part of a $1.23bn package also including Asian assets.
Paraguay Eyes Market, But Will Wait
Paraguay still has a long-term goal of tapping the international capital markets, but must first resolve a court case involving a defaulted loan and will also likely wait until the country achieves an investment-grade rating, government officials told LatinFinance at the sidelines of the IMF meetings. A Swiss court has ruled that the nation must pay debt holders interest and principal on an $80m loan extended to a Paraguayan diplomat in the 1980s during the dictatorship of Alfredo Stroessner. The government cannot tap the bond markets “until we resolve that,” the official said. Besides, he added, the country is in good fiscal shape and does not require the funds. Citigroup had been working with the government, but does not necessarily have the mandate for any upcoming issue, he said. The sovereign is still several notches below investment-grade, but was recently upgraded to BB- from B by S&P. This came on the back of increased fiscal flexibility thanks to the Brazilian government’s agreement to raise the country’s share of revenues generated from the Itaipu Dam. As a result, Paraguay’s revenues are expected to increase by 1.5% of GDP, allowing it to fund much needed-infrastructure. Earlier this year, BBVA Paraguay priced its $100m 3-year bond to yield 9.75% via Citi and BBVA, issuing what was thought to be one of the first cross-border dollar deals to emerge from the country. The Reg-S only transaction was rated Ba3.
Paraguay Receives Double B
S&P has moved Paraguay into the double B universe by upping its long-term foreign currency rating to BB minus from B+, with a stable outlook. This comes on the back of increased fiscal flexibility thanks to Brazilian government’s agreement to raise the country’s share of revenues generated from the Itaipu Dam, it says. “As a result the Paraguayan government is able to continue to expand social programs and fund much-needed infrastructure while maintaining fiscal discipline,” it adds. Paraguay’s revenues from the project are expected to be increased by about 1.5% of GDP. The sovereign had been thought to be considering an international bond offering as far back as 2009, but no deal ever emerged. Earlier this year, BBVA Paraguay priced its $100m 3-year bond to yield 9.75% via Citi and BBVA, issuing what was thought to be one of the first cross-border dollar deals to emerge from the country. The Reg-S only transaction was rated Ba3.
Itau Paraguay Gets $40m LoC
Banco Itau Paraguay will receive $40m from the IFC and OPEC Fund for International Development (OFID). The investment consists of a four-year credit line of up to $20m to fund multi-industry small and medium enterprises, and a four-year credit line of up to $20m to increase access to finance for farmers and small and midsize agribusiness firms. The transaction represents the IFC’s fourth debt investment in Paraguay’s financial system, and OFID’s first, Salem Rohana, IFC country manager for Argentina, Chile, Paraguay, and Uruguay, says in a statement.