Dominican Republic Bi-Weekly Report

DR’s 2019 Forecast

December 31, 2018BancTrust & Co. Research Team
  • 2019: Keeping the pace up
    • DR’s economy will shine again in 2019
    • Tourism keeps going strong
    • Foreign currency flows to reinforce reserves’ position in 2018
    • Low inflation returns in 2018. Next year, story could be different
  • Fiscal accounts to keep on positive roll
    • Revenues improving at better than expected rates
    • Efficiency in collection will have the final say

Another year is gone and DR continues with its same old habits: Region-leading GDP growth rate, massive foreign currency inflows, inflation under control, among others. 2018 proved our point 2017’s deceleration in economic activity was nothing more than a bump, and we expect next year to continue the same way.

Positive results, as usual, tend to undermine some issues that, in spite of being urgent matters, continue being delayed maybe because they are politically inconvenient – if you asked us last year, we may have said some advances on such issues (we will tell you which later) were possible; today, any advances may be a miracle. Nonetheless, it is time to dig into 2018 results and our 2019 forecasts, so fasten your seatbelts!

2019: Keeping up the pace 

Economic activity last year suffered mightily after hurricanes severe damages, but this economy is resilient and that was proved this year.

We estimate DR will close 2018 with a GDP growth rate of around 6.8%, besting every official forecast made for this year. This leads to a GDP nearing every time more to USD80bn, a milestone we expect to be easily achieved next year.

As we see it, DR’s economy will shine again in 2019 to see GDP growth rates surrounding 6.2%. In this regard, we consider activities like tourism and construction, as well as exports dynamism, will lead economy’s way.

 

Dominican Republic Bi-Weekly Report

Electric Loans

December 31, 2018BancTrust & Co. Research Team
  • IDB and China loan USD1bn to electrical sector
  • Financial partnership with China will take the spotlight
  • Strong GDP growth and hard currency inflows

Less than two months away from end of year, Dominican Republic’s government shows it has not stopped looking for best financing options. In the first days of this week, we learned IDB and China loan USD1bn to electrical sector, is a critical sector and one of those needing more investments.

Dominican Republic Bi-Weekly Report

Tourism for the Win

December 31, 2018BancTrust & Co. Research & Strategy Team
  • Touristic results in line with our expectations
  • Region-leading GDP growth
  • DOMREP’21 seems a good option right now

Last year we previewed Tourism activity would keep playing a key role in DR’s economy; as of today, history (so far) proves us right. As central Bank of Dominican Republic (BCRD in Spanish) updates data on the sector, we are able to see touristic results in line with our expectations.

Dominican Republic Bi-Weekly Report

Political Parties’ Law Enduring its First Attacks

December 31, 2018BancTrust & Co. Research & Strategy Team
  • Political Parties’ Law has finally been approved
  • JCE managed well demands for law’s temporary suspension
  • Electoral Law should be close
  • Fitch maintains DR’s rating at “BB-“

Political Parties Law has finally been approved and, suddenly, the panorama for future elections seems like it could be brighter, representing the first (but one of the most important) steps for political stability in the long-term.

Dominican Republic Bi-Weekly Report

Knocking on Markets’ Door

December 31, 2018BancTrust & Co. Research & Strategy Team
  • DR issues USD1.3bn in 10-yr, 6%-coupon bonds
  • Better upside opportunities with DOMREP’27 (8.625% coupon) and DOMREP’24 (6.6% coupon)
  • Robust economic results as of May. Tourism remains in a good shape
  • Inflation scratches ceiling of target range

The Dominican Republic (DR), unlike past years, has taken advantage of improving domestic economic conditions to tap international markets more than once. Barely five months after issuing USD1bn – in 30-yr, 6.5% bonds –, DR issues USD1.3bn in 10-yr, 6%-coupon bonds. Coupon rate, even though slightly higher than DOMREP’27’s issued last year, should be considered in our view as a victory, especially considering how international financing conditions tighten with FED’s rate hike increase path.

From where we stand, this new benchmark issuance won’t impact significantly on Public Debt-to-GDP ratio – stood at 38.8% of GDP as of 31 May 2018 –, keeping it below 40% of GDP. Furthermore, we believe current high-growth track will reinforce the general positive perception on DR around the markets. The resulting coupon – and elevated demand, totaling USD3.5bn – evidences such positive perception on both short and long-term outlooks. We will later provide more details on the sweet economic moment DR is going through.

As we have seen, positive conditions surround the issuance of new DOMREP’28 bonds. Investment opportunities are a different story, because according to our proprietary model there are better upside opportunities with DOMREP’27 (8.625% coupon) and DOMREP’24 (6.6% coupon).

Our model indicates that DOMREP’27 and DOMREP’24 have been trading cheap to the curve, with DOMREP’27 being our top sovereign option. In fact, this bond presents one of the highest yields in the curve (6.4%) while counting with the highest coupon in the entire curve; thus, yield and carry make it a very attractive option.

In our view, DOMREP’28’s issuance should be the last of this year – it should be enough to cover current budgetary gaps.We at BancTrust consider that the only way to see DR issuing more bonds in 2H18 would be if financing conditions improve importantly and allow low-enough interest rates to make refinancing worth a look. This scenario does not seem probable when looking at international context, therefore our view.

  • Tuesday, January 16 2018

    Venezuela:

    - Yesterday the President Nicolas Maduro gave its yearly speech which should be something close to the state of the union and that according to the constitution should be presented in front of the National Assembly. However, this year and arguing the illegality of the National Assembly, the decision was to give his speech in front of the National Constituent Assembly. In detail, more than a state of the union this was one of the usual speech of the President with not much data to collect. Among

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  • Monday, January 15 2018

    Venezuela:

    - The dialogue meeting held in the Dominican Republic between members of the opposition and the government last weekend culminated again without any results. International mediators indicated that although some agreements were reached, several points remain pending and both parties will meet again this Thursday, January 18. In our opinion, it was expected that results would not be achieved,as we have been saying we believe that the most likely to happen is that the negotiation rounds will culmin

    Read More >>
  • Friday, January 12 2018

    Venezuela:

    - The National Electoral Council (CNE in Spanish) announced that it has approved the schedule for the validation of political parties that did not participate in the last municipal elections which it will take place on 27 and 28 of January. The process will be carried out to comply with the order of the National Constituent Assembly (ANC), which has as its sole purpose to be another obstacle for the opposition. We believe that at the moment the attention is focused on the negotiations in the Dom

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  • Thursday, January 11 2018

    Venezuela:

    - The situation regarding Venezuela’s debt with Brazil received yesterday two mixed updates, as the Brazilian Ministry of Finance reported that the first paid an old debt but that it is still in arrears with another payment. In detail, the ministry informed that Venezuela paid USD262.5mn – corresponding to the May-August period of 2017 – on 5 January as part of their commitments under the Reciprocal Credit and Payments Agreement (CCR), which is part of the benefits of the Latin American In

    Read More >>

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