DCM Welcomes Costa Rica Return

Costa Rica achieved its pricing goal in a return to the international bond markets, getting $4.7bn in demand for a new $1bn 2022 bond. “It was important to return the international markets as method of financing and give investors Costa Rican paper in their portfolios,” Luis Liberman, Costa Rica’s Vice President, tells LatinFinance. In its first cross-border transaction since 2004, the Baa3/BB+/BB+ sovereign priced at 99.989 with a 4.25% coupon to yield 4.25%, the tight end of 4.25%-4.375%-area guidance which had followed low-to-mid 4% price thoughts. The bonds were trading up 0.25-0.65 points in the grey, according to investors. “This is a diversification trade for many investors who don’t own Costa Rican paper. We now have a benchmark and a choice outside of Costa Rica’s electricity company that will sit neatly in our portfolios,” says a participating London-based EM investor, noting fair pricing. Leads were heard looking to compress the deal below 4% Thursday, but the buyside was heard pushing for, and eventually getting a 4.25% yield. Liberman says the 4.25% yield level was the correct one for Costa Rica in the current market. Though difficult to comp against Costa Rica’s illiquid 2020 bonds, bankers and investors looked at Guatemala’s 2022 bonds – heard trading at 4.24%-4.12% yield – or at the 2021s of Costa Rica’s state-owned utility Instituto Costarricense de Electricidad, trading at 5.16%-5.03% yield. “The key positive credit metrics for Costa Rica are external debt at 5% of GDP with solid track record of economic growth (averaging 5%) almost irrespective of situation in the global economy,” says a participating US-based EM investor. The borrower plans to use proceeds to address existing debt, including a $250m bond coming due in 2013. The country’s congress has authorized the government to issue $4bn in bonds over a 10-year period. Citi and Deutsche Bank managed the sale, and the pair are also mandated on a new deal for fellow CentAm credit El Salvador that