Guatemala Braves Market Conditions

Guatemala defied the recent global market volatility to price a new $700m bond, upsizing the deal from $500m and clinching a yield below 6%. Demand for the 2022 topped $2bn, according to investors following the sale. “Markets are fragile, but this is a good window to issue,” says an EM portfolio manager who found Guatemala’s bond fair value for a new benchmark 10-year. The Ba1/BB/BB+ Central American sovereign priced at 99.065 with a 5.75% coupon, to yield 5.875%, at the tight end of 5.875%-6.00% guidance and tight to earlier 6% whispers. “At 6% the deal seemed fair and not cheap, but when they tightened below 6% it gave us a sense that it was priced too aggressively,” says an EM investor who opted out of the trade. Calculating the concession against Guatemala’s existing illiquid curve was difficult for some investors while others looked at Guatemala’s existing 2034s and Costa Rica’s 2020 bonds as general reference points. Investors and bankers saw Guatemala’s 2034 bonds trading to yield 6.20%-6.30% prior to announcement. The new bond was heard trading up 0.5 points at the end of the day. “The reason they managed to launch this bond at these levels is because of limited supply in the bond market, debt metrics for Guatemala are better than other Central American sovereigns, and lack of availability for benchmark-sized Central American paper, despite issuing at tighter levels under current market conditions,” adds another EM investor. Better visibility, an $630m debt service coming due in 2013 and diversification of funding away from traditional multilateral sources are a few reasons for issuing in the international bond market, according to analysts. More than 140 accounts were heard participating, with 65% from the US, 15% from the UK, 15% from Europe ex-UK, and 5% from Central and South America. About 70% of the buyers were said to be fund managers, with the remainder divided roughly equally between hedge funds, pension funds, insurance companies, and offshore reta