El Salvador Lands Below 6%

El Salvador has priced a long-awaited $800m bond, getting robust demand despite tightening below 6%. Demand for the new 2025 topped $5bn, according to investors following the sale. Starting at low-to-mid 6%-area indications, the sovereign tightened to 5.875%, pricing at 99.984 with a 5.875% coupon to yield 5.875%. The bonds were trading up 0.50-0.75 points in the grey, according to a trader. The issue was seen conceding 5bp-10bp versus the issuer’s curve. “El Salvador looks fair and not relatively cheap to initial price talk. But demand is clearly there for yield. Assuming some of this will go to local pension funds means that demand outstrips supply,” says a New York-based portfolio manager following the trade. At least $400m of the proceeds will be used to retire short-term Letes, with the remainder to be used to change the use of resources or to cover the fiscal deficit. Citi and Deutsche Bank managed the Ba2/BB minus deal. The continued issuance of Letes – at rates above 5% for 6-month paper – made little sense, Nomura says, with the international markets offering the government cheaper rates. The issuance will reduce El Salvador’s short-term debt, Nomura adds, lowering liquidity risk until the February 2014 presidential election and allowing the new administration to strengthen the country’s fiscal outlook.