Bolivia Return Lands inside Expectations

Investor demand for yield and Bolivia’s strong macroeconomic credentials appear to have overcome political risk concerns, as the Andean sovereign got a yield inside 5% in its return to the debt capital markets after nearly a century. Buyers put in for more than $4.25bn in orders in one of this year’s most anticipated DCM transactions. “It looks tight, but the ratios are pretty solid for Bolivia. We’re OK in the short-term and want to be paid for near-term risk, but in the medium to long-term there are a lot more question marks,” says a participating London-based EM portfolio manager. In what was essentially a debut, the Ba3/BB minus/BB minus issuer priced at par with a 4.875% coupon to yield at the tight end of 4.875%-area guidance that followed 5.00%-area whispers. The bond was heard up 0.15 points in the gray. Investor sentiment was mixed with some citing improvement in Bolivia’s improved fiscal and external positions as positives while others felt they were not justly compensated to take on Bolivian risk. Earlier on, Dominican Republic and El Salvador had been discussed as starting possible starting points, suggesting a 5%-6% yield. Some found that Venezuela, with an interventionist government but little question regarding willingness to pay, was a better value offering more than 10% yield. “We don’t see value at these levels. Bolivia seems to be riding the wave of demand for EM sovereign bonds, and while underlying credit metrics look good and with strong performance in the hydrocarbon sector, it does have a track record of nationalization,” says a West Coast-based EM investor who passed. “Everyone was shocked at the low yield, but it is an EMBI-eligible sovereign bond at 4.875% among the EMBI-eligible names like Brazil, Mexico, Peru, Colombia all trading around 2.5% and lower rated EMBI sovereigns like El Salvador trading around 4.50%. So there is some relative value here as an EMBI index play in a market that continues to see nothing but inflows,” says a DCM b