The Dominican Republic sold DOP71 billion ($1.25 billion) worth of new, 12-year peso-denominated notes in the international market on Tuesday, surprising investors with a last-minute decision to cancel a US-dollar tranche.
The Caribbean island nation initially intended to sell 11.5-year bonds in a dual currency deal, opening the initial price talk on the dollar tranche at around 8%. It unexpectedly abandoned the plan for a USD issue before pricing, according to investors.
“By initially planning to issue these bonds in pesos and dollars at the same time, the Dominican Republic addressed a long-held investor concern regarding their over-reliance on the US dollar market,” said Zulfi Ali, a fixed-income portfolio manager at PGIM, the investment management division of Prudential.
“With both tranches oversubscribed, it surprised the market by pulling the [US dollar] tranche entirely, opting to issue the full amount in pesos,” Ali told LatinFinance. “The secondary market dollar curve rallied on the back of this as this was seen as confirmation from the issuer to reduce reliance on dollar borrowing.”
According to Bruno Rovai, a sovereign strategist at Macquarie Asset Management, said that while the government gave no explanation for the U-turn on the dollar notes sale, the guidance on pricing — 7.65% plus or minus five basis points — was close to fair value.
“This means that at guidance there was not a concession premium to investors, making this issuance not attractive,” Rovai said.
The Dominican Republic priced the DOP71 billion of peso-denominated notes at a coupon of 11.25%, after investors placed as much as DOP155 billion in orders, the finance ministry said in a press release on Wednesday.
“When we go out to the capital markets, both internally and externally, we see investor appetite for our bonds and that is a sign that we are managing public finances correctly, because no one puts their money where they have no guarantees,” said finance minister Jochi Vicente in the release.
The finance ministry plans to use the proceeds from the bond sale to fund a buyback of 2026 notes, the statement added.
BOND BUYBACK
Investors turned in DOP40.8 billion of the 9.75% 2026 notes as part of a tender offer that expired on September 11. The government accepted to repurchase all the bonds tendered, promising to pay DOP1,020 for every DOP1,000 in principal, it said in a separate press release.
Moody’s affirmed the Dominican Republic’s Ba3 rating in August and changed the outlook to positive.
“While the credit is hurt by high oil prices and slower growth this year, investors should continue to be attracted to these bonds because of better political continuity and the government’s pro-business message,” Ali said.
The country sold $1.8 billion worth of bonds in US dollars and Dominican pesos in a two-part deal in February to repurchase DOP37.2 billion worth of 8.9% 2023 bonds.