Bolivia has mandated Bank of America Merrill Lynch and Goldman Sachs as it bids to issue its first international bond in nearly 100 years.
The small Latin American country is hoping that its strong growth and a demonstrable approach to orthodox economic management since 2006 will enable it to attract some of the large fixed-income flows into the region.
The bankers will be hoping the attractiveness of the region will extend down the credit spectrum to the sovereign, which is rated single-B plus by Standard & Poor’s and Fitch, and B1 by Moody’s.
Two agencies have Bolivia on a positive outlook because of the potential for growth from large investment and infrastructure investments that have been announced recently. But bankers who are not involved in the deal question whether it comes too soon in the country’s economic revival to tempt investors at a yield that makes sense for the country.
Luis Arce, Bolivia’s minister of the economy and public finance, announced his intention to Euromoney last month to issue a $500 million bond, and revealed more details – including the selection of the bookrunners – at the Inter-American Development Bank conference in Montevideo. He admits that the timing of the transaction is opportunistic, aimed at the huge fixed-income flows coming into Latin America.
"The capital flows leaving Europe, the US and some countries in Asia are looking for places to land, and we feel that Bolivia is a natural place and we want to show it’s a significant option for that capital flow," says Arce.
"We want to position ourselves to support our sustained growth. Bank of America Merrill Lynch and Goldman Sachs will help us [towards] our goal [which is] to put us on the financial map."
The country’s recent economic growth has been strong, above 4.4% every year since 2005 – except in 2009, when the world’s economic crisis led Bolivian growth to dip to 3.4% – and in 2011 it was 5.1%.
Arce says the economic growth is "real and not ephemeral", saying it is driven by improvements in basic utilities across a large part of society and not through consumer goods within a small percentage. The country has also delivered strong reductions in poverty, which has fallen to 48% of the population in 2011 from 60% in 2005 and has cut extreme poverty from 38% to 24.3%. Meanwhile, the private sector has been growing, with 53,700 private companies in the country at the end of 2011, up from 19,000 in 2005.
Arce says a successful bond will reposition the country with the financial community as a safe and growing financial jurisdiction, but he would not be drawn on the yield and tenor he envisages for the bond, which would be spent on developing the country’s infrastructure.
He does, however, point out that the country has other sources of potential finance for its growth programmes, notably from the IDB and other multilateral agencies. The government has also recently introduced a bill that will enable it to spend some of its growing reserves, which are expected to hit $12.7 billion this year, up from $1.7 billion in 2005.
"It remains to be seen whether Bolivia will be able to attract investors at yields that make it a sensible financing option," says one Latin American DCM banker.
