Andean, Central America, & Caribbean Weekly Report

Paraguay & Costa Rica

November 17, 2017BancTrust & Co. Research Team
Paraguay: Setting the Stage for Early 2018
  • Paraguay looks to issue a 10-yr global bond between January and February. Whether it is issued in foreign or domestic currency remains to be seen, but the latter has become an attractive option recently
  • The Paraguayan curve of dollar bonds is quite expensive in our opinion when compared to other EM countries like the Dominican Republic. Taking this into consideration, the domestic market could become the most attractive offer

Paraguay is looking to issue USD500mn in 10-yr global bonds by January or February of 2018, according to what was stated by Finance Minister Lea Gimenez. There’s not much detail available on the issuance so far, but Gimenez did point out an interesting diatribe: whether issuing global bonds in foreign or domestic currency. She advised some banks have expressed interest in a global bond denominated in Paraguayan Guarani (from now on, PYG), but a final decision would be taken after assessing the results of the roadshow.

We believe that the option of opting for issuing in local currency – and not in USD – might not be that contrived because of two specific factors: the positive reaction of investors’ demand to recent issuances in PYG; and the political obstacles that could face a new issuance in USD. These factors, along with the strong economic performance of the country – we will provide details on this later –, would lead (in the case of favoring the PYG option) to a successful issuance for the government as they would manage to acquire the funds required for closing the budget gap while reducing the magnitude of the external debt-to-GDP ratio.

Regarding the first of the factors abovementioned, a recent retap for a total of PYG90bn in 3-yr and 5-yr bonds was oversubscribed by 177% – order books totaled PYG249.8bn. In detail, the bids for the retap of the 3-yr, 7.3% securities totaled 253.6% of the total issued amount (PYG50bn); while the PYG40bn retap of the 5-yr, 8% securities received bids for a total of PYG123bn. In the political ground, the Deputies’ Chamber – amidst the discussions on the Budget for 2018 – intended to cut in half the size of the issuance to avoid “excessively” increasing the amount of the country’s indebtedness in foreign currency.

The hurdle set by Deputies’ decision came even after the President Horacio Cartes made a call to “not worry” on public indebtedness as the country has the capacity to honor all its outstanding obligations; and also after an exercise of debt sustainability conducted by the Finance Ministry that showed that even in the worst-case scenario the public debt is sustainable. Therefore, we see that for the government would be a lot more convenient to issue the bonds in local currency; while the investors – even foreign – would also be favored by the positive outlooks on the Paraguayan economy, which once realized would likely push upwards the price of securities issued by the country. Also, the interest rate of the security is likely to be very attractive considering that the PYG has appreciated 1.48% y-o-y against the dollar while inflation is expected to close 2017 at 3.8%.


Andean, Central America, & Caribbean Weekly Report

Panama: Moderate Growth with Solid Supports

November 3, 2017BancTrust & Co. Research Team
  • Ministry of Economy and Finance reduced growth projections by 0.3 percentage points. However, the economic outlook remains positive based on infrastructure projects
  • We highlight the outstanding performance the Panama Canal is having since the expansion, reaching a cargo record of 403.8mn tons
  • Public investment projects have found support in China financing

At the beginning of this month, the Ministry of Economy and Finance (MEF in Spanish) reduced economic growth projections for the end of 2017 to 5.5%, which is 0.3 percentage points lower than those projected at the beginning of the year. According to the press release, the downward revision is attributed to moderate growth and, in some cases, to a smaller increase in certain activities of importance to the economy; such as financial intermediation, real estate, business & rental activities, retail and electricity supply. In fact, the Monthly Economic Activity Index (MEAI) reflects a similar performance for the January-August period with an increase of 5.7% y-o-y, and a 4.9% y-o-y growth in August, significantly lower results when compared with the first five months of the year that showed an average growth around 6.6%.

The IMF also reduced its growth projections for the country in 2017 from 5.8% to 5.3%, while its projections for 2018 suffered a reduction to 5.6% from 6.1%; while the average growth until 2022 remains unchanged at 5.5%. In our view, despite the fact that several sectors are growing at more moderated rates, we believe that the public investment in infrastructure and the positive performance of the Canal – further details are provided later – would support the actual growth rate and will keep it in line with the long-term projections of 5.5%.

In this regard, last month Moody’s changed its outlook on Panama to positive from stable, while they also reaffirmed its rating at Baa2 based on two main issues according to the report. In the first place, they expected that the debt trend will improve in the upcoming years due to compliance of the fiscal rule in the last few years and a strengthening of the institutional framework. They hope this to continue over time as they believe that the government has been doing a significant effort increasing transparency and management on fiscal matters. The second factor is the GDP growth rate that continues to outperform peers and keeps supporting the country’s economic strength.


Andean, Central America, & Caribbean Weekly Report

Puerto Rico: A Light Inside the Tunnel

October 20, 2017BancTrust & Co. Research Team
  • Hurricane Maria hit strongly Puerto Rico and caused significant negative impacts on the already deteriorated Puerto Rican economy
  • President Trump shook the bond market alleging that he wants to eliminate the island’s debt when he actually meant it would be addressed through the bankruptcy process
  • Giants of technology wants to help to restore the electric grid and communications infrastructure, which would give a boost to the rate of recovery

Last month, Puerto Rico was hit hard by Hurricane Maria with 155 mile-per-hour winds, strongly affecting the deteriorated economic situation. It’s important to remember that before the natural catastrophe the island was already struggling with the refinancing of a debt amounting USD74bn, as well as with an economic depression that has lasted for almost a decade due to a mismanagement of the economy.

Andean, Central America, & Caribbean Weekly Report

Honduras & El Salvador

October 6, 2017BancTrust & Co. Research Team
Honduras: On the Right Track
  • Moody’s rating agency upgraded Honduras to B1 from B2, given the macroeconomic stabilization achieved as well as the controlled fiscal and debt metrics. In our view, this helps to see more credible a 4% GDP growth for the end of 2017
  • The IMF approved the last revision of the Stand-By and Credit Facility agreement with the country, leaving open the possibility of a new agreement for next year
Perception on Honduras is going high starting with this week’s improvement on the sovereign rating from Moody’s which upgraded the country to B1 from B2, while changing its outlook to stable from positive. In this respect, the rating agency took in consideration the stabilized levels of debt and fiscal metrics – when compared to its peers – and the economic conditions that supports fiscal discipline. However, later on this report we will see that debt levels are still something that concerns some domestic sectors but the government disregard this allegations. Additionally, the fiscal consolidation process it being positively assessed thanks to the IMF program which established fiscal targets that back the already established fiscal responsibility law, leading us to believe that the reduction in fiscal deficit will continue.

The other aspects on Honduras perception have more to do with economic activity and the respect to the existent institutions. In this regard, the President of Honduras Juan Orlando Hernandez –who is running for office again – stated that due to the new organization in the financial matter, they expect the country to grow up to 4.1%. In the institutional arena are highlighted the new Tax Code and the new Custom System – which is, of course, benefited by the Custom Union. In our view, we see this growth goal achievable given the recent results of economic activity that reported a 5.2% y-o-y growth in the period January-July and 4.9% y-o-y in 2Q17.

Under the IMF Perception

As the date of the end of the Stand-By and the Credit Facility Agreement under the IMF is closer (October 26), the IMF proceeded to go and make its sixth biannual revision since 2014 which looked promising. In detail, the organism informed that the revision was approved due to the government’s commitment and the well-executed programs. This way the IMF decided to improve its GDP forecasts from 3.5% to 4% for the end of 2017 – above of what they were previously expecting with the instauration of the program – which reflects, in our view, the credibility of the government’s commitment with the macroeconomic stabilization.

Andean, Central America, & Caribbean Weekly Report

Peru: Great News Came, But Could be Better

September 22, 2017BancTrust & Co. Research Team
  • Moody’s affirmed Peru’s “A3” rating and a “stable” outlook, but we believe that the economic prospects could continue improving and thus signal towards better ratings in the short and mid-term
  • GDP grew 3.64% y-o-y in June while the YTD figure rose 2.3% y-o-y. In our view, considering the reconstruction works after El Niño and those for the Panamerican Games of 2019, economic activity could pick up even further to grow 3% by year-end
  • Y-o-y inflation stood at 3.37%, above the 1%-3% official goal. Nonetheless, we recommend being watchful of possible stimulus measures that could further prop up inflation

Credit rating agency Moody’s decided to affirm Peru’s credit rating at “A3” as well as the “stable” outlook, taking into account that the economy has been able to recover importantly after suffering the impact of negative shocks as the spillover of the Odebrecht scandal and even the worse-than-expected climatic phenomenon of “Coastal El Niño”. An additional positive factor considered by Moody’s refers to the enhancement of the fiscal accounts, which now count with a renewed credibility that does nothing but add to the outlook of a resilient macroeconomic stability.

  • Wednesday, November 15 2017


    - Amid uncertainty after the investors meeting, the attention continues to be on the interest payments which grace period expired this week (PDV’27, VENZ’19 and VENZ’24) and the call for default for both Venezuela and PdVSA. In this sense, the ISDA which is in charge since last week of assessing a credit default decision over the PDV’17 payment (which also arrived later than the day expected) said that they will meet again on Thursday with a deadline until Friday to make any decision on

  • Tuesday, November 7 2017


    - The selloff in sovereign and quasi-sovereign curves continued yesterday, with the first leading with an average 11.47% drop – thanks mostly to the whopping correction of both VENZ’18, as the old fell 51.73% and the new decreasing 48.64%. Meanwhile, the PDVSA curve closed the day with a -4% average result. This situation is likely to continue, in our view, for as long as payments of coupons in grace period are not being made, situation aggravated by the closeness of the deadlines of each gr

  • Thursday, November 2 2017


    - After yesterday’s comments of the Depository Trust Company of Venezuela’s bond payments, confirming the transaction and extra official information about some holders that already received payment on 2020 bond, the Venezuelan bonds showed positive movements. In this sense, we can use the PDV’20 experience to expect a similar process for the funds of the PDVSA 2017N to matured today for a total amount of USD1.170mn between principal and interest, with an announcement of the payment during

  • Wednesday, November 1 2017


    - Until today 01 January 2017, will be held the process to postulate for the municipal elections, which are expected for around 10 December. However, there is no clear information on the ongoing process and the opposition response has not been clear either. In detail, seven opposition parties has decided to not participate in the next electoral process, however we do not discard that some of its member could –at the very last minute- decide that they will participate as an independent candidat


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