The Republic of Paraguay New Issue Case Study:
Summary of Terms and Conditions Offering Memorandum Issuer: Ratings: Type: Size: The Republic of Paraguay Ba2/BB / BB- (Moody s /S&P / Fitch) 144A / Reg S US$1 Billion Pricing Date: August 4 th, 2014 Settlement Date: August 11 th, 2014 (T+5) Maturity: August 11 th, 2044 Yield to Maturity: 6.100% Spread to Benchmark Treasury: +281.6 bps Coupon: 6.100% Price: 100.00% Denominations: Joint Bookrunner: US$200,000 / US$1,000 BofA Merrill Lynch Sovereign Description Paraguay is located in central South America and as of 2013 had an estimated population of approximately 6.78 million. The population is distributed with approximately 59% of the population living in urban areas, approximately 7.7% of which live in Asuncion (capital of Paraguay). In 2013, GDP grew by 13.6% in real terms to approximately US$29.8 billion, primarily as a result of growth in the agricultural sector, and GDP per capita increased by 11.7% in real terms. Agriculture dominates the Paraguayan economy, representing 18% of real GDP in 2013; commerce and manufacturing represent 14.8% and 10.2%, respectively. Paraguay is rich in hydroelectric power capacity, densely forested in parts, and has extensive farmlands. Paraguay is the largest exporter of electricity in South America, the bulk of which is produced at the Itaipu hydroelectric plant and the Yacyreta hydroelectric plant. 1
Transaction Overview On August 4 th, 2014 BofAML acted as a Joint Bookrunner on the Republic of Paraguay s ( Paraguay ) 30-year bond offering issue of. The notes were rated Ba2 (Pos) /BB (Stable) /BB- (Pos) (Moody s / S&P /Fitch). The offering marks the second time Paraguay has accessed the international debt capital markets since its inaugural debt offering in January 2013, with BofAML being the only bank to have participated in both offerings. Highlights of the transaction included: On August 1 st, Paraguay completed a Global Roadshow with two teams in New York, Boston, Los Angeles and London, visiting over 50 investors The transaction was announced as US$Benchmark Transaction with initial price thoughts of 6.375% area Strength of investor demand as result of thorough marketing through the Global Roadshow allowed price tightening from initial pricing thoughts of 6.375% area to 6.125% - 6.25% during official guidance, ultimately pricing at 6.100%, representing a yield tightening of 27.5 bps during execution and resulting in a spread over 30-year Treasuries of 281.6 bps With its first 30-year issuance offering, Paraguay s 30-year Notes represent a unique vehicle for international investors to get exposure to the country s credit This is the first 30-year bond offering by a Non-Investment Grade Sovereign entity in South America since 2009 Prior to announcement, Paraguay s outstanding Notes due 2023 were trading at a price of 101 with a G-Spread of 220 bps, which after deducting a new issue concession of approximately 10 bps represents a 10s/30s curve of ~50 bps The transaction continues BofAML's leadership role in the Latin America Debt Capital Markets sovereign space 2
Bloomberg Announcement 3
Summary of Final Roadshow Schedule BofAML designed a Global Roadshow during which the Republic of Paraguay met with over 50 investors through 1- on-1s, group meetings and conference calls Date Team A Team B Friday, July 25, 2014 Announcement Monday, July 28, 2014 -- London Tuesday, July 29, 2014 Los Angeles London Wednesday, July 30, 2014 Los Angeles -- Thursday, July 31, 2014 Boston New York Friday, August 01, 2014 New York New York Monday, August 04, 2014 Pricing Republic of Paraguay Roadshow Presentation 4
Positive Reactions in the International Press Comunidad financiera internacional da una señal positiva al Paraguay Ministerio de Hacienda Paraguay La exitosa colocación de Bonos Soberanos realizada ayer constituye una inequívoca y positiva señal que la comunidad financiera internacional brinda al Paraguay, ratificada además por el plazo y las tasas conseguidas, que son inmejorables y obtenidas de manera mucho más ventajosa que países que tienen rating crediticios mayores que el nuestro, afirmó el ministro de Hacienda, Germán Rojas. Esta nueva emisión de Bonos Soberanos es una cuestión que tiene que ponernos contentos a todos, porque la señal que está dando la comunidad financiera internacional hacia Paraguay es que somos un país diferente, con una gestión diferente, sostuvo el ministro respecto a la colocación de 1.000 millones de dólares en el mercado financiero internacional, a una tasa de 6,1% y a un plazo de 30 años. Al mismo tiempo, señaló que ésta es la mayor captación de capital extranjero de la historia paraguaya y que en total alcanzan los 1.500 millones de dólares, sumando la emisión de 500 millones de dólares realizada en enero del 2013. Estos nuevos recursos estarán acreditados en el Banco Central del Paraguay (BCP) la próxima semana. Igualmente, el ministro Rojas recordó que este dinero está orientado a cubrir las prioridades del Gobierno Nacional y que su uso estará detallado en la página web institucional del Ministerio de Hacienda.. 5
Positive Reactions in the International Press Paraguay dies Argentina worries with new bond Reuters Paraguay decided to test LatAm resilience Monday, roadshowing a new bond as the market swirls around a looming debt default by Argentina.Rated Ba2/BB/BB-, Paraguay will kick off investor meetings Tuesday, just a day ahead of a deadline for its neighbor to plunge into its second d efault in a decade. Bankers and investors both said they expected no contagion from events in Argentina, where the sovereign is locked in a bitter battle with holdout creditors. Since its debut in the international capital markets a year and a half ago, Paraguay has won over accounts with a pledge to p rudent economics and increased investment. "It's a pretty strong Double-B credit, especially if you look at the strength of the agricultural and electricity sectors and at the sovereign balance sheet," said Ross. There are some offsetting traits on the institutional and political side of things, but overall it's a decent story. Citing encouraging signs on implementation of reforms, Moody's and Standard and Poor's both upgraded Paraguay's ratings by on e notch this year, to Ba2 and BB respectively. "I wouldn't be surprised to see another positive rating action over the next six to 12 months given the way Paraguay's debt dynamics are behaving," said Sean Newman, senior portfolio manager at Invesco. "They are trying to diversify the economy away from the agricultural sector, and they have done a good job attracting foreign direct investment from regional players. Economic activity, which has historically been volatile due to dependence on the agricultural sector, accelerated sharply in 2013, with real GDP growing by a record 13.6%. Economic growth is expected to decline to 4.8% in 2014, according to IMF estimates, but the country's debt-to-gdp ratio should remain under 15%, well below similarly rated peers. 6
Positive Reactions in the International Press Paraguay Sells $1 Billion of Bonds in Return to Overseas Market Bloomberg Paraguay sold $1 billion of dollar bonds today, tapping overseas markets for the first time since a rating upgrade in June. The South American nation issued 30-year dollar bonds to yield 6.1 percent, compared with an average yield of 6.29 percent for similar maturity notes from countries that share Paraguay s BB rating from Standard & Poor s, according to data compiled by Bloomberg. Bank of America Merrill Lynch and JPMorgan Chase & Co. were the managers of the sale. The country will use the proceeds for infrastructure and energy projects, according to a person familiar with the matter, who asked not to be identified because the information is private. President Horacio Cartes said he would seek to increase development and agriculture investments after he took office last year. Paraguay s credit rating was raised to two steps below investment grade in June by S&P, which said measures the government istaking to bolster investment will fuel growth. The rating, in line with Croatia, Hungary and Costa Rica, has a stable outlook. Paraguay sold $500 million of 10-year bonds to yield 4.625 percent in January 2013, its debut in the international bond market. The yield has since fallen to 4.46 percent.. 7