By Andrea Jaramillo and Boris Korby – Jul 5, 2011 7:19 PM ET
Colombia sold $2 billion of 10-year dollar bonds overseas, the nation’s first international debt sale since winning an investment-grade rating in March.
The country sold the 4.375 percent bonds due 2021 to yield 130 basis points, or 1.3 percentage points, more than similar- maturity U.S. Treasuries, Vice Finance Minister Bruce Mac Master told reporters today in Bogota. Mexico dollar bonds due 2020 yield 4.01 percent, while Brazilian bonds due 2021 yield 4.06 percent, according to prices compiled by Bloomberg.
“Colombia is a great credit and it offered a good premium,” said Alberto Bernal, head of fixed-income research at Bulltick, a Miami-based brokerage that focuses on Latin America.
The offer is the largest overseas sovereign debt sale from Latin America since Venezuelaissued $3 billion of bonds in August, data compiled by Bloomberg show. Colombia is tapping overseas debt markets for the first time after its foreign credit rating was upgraded to the lowest level of investment grade by Standard & Poor’s in March, Moody’s Investors Service in May and Fitch Ratings last month.
Colombia received bids worth $7.3 billion for the dollar securities, Public Credit Director German Arce said in the presentation alongside Mac Master. The government has said it plans to issue $2.24 billion in foreign bonds in 2011. Colombia may decide not to sell the remaining $240 million, Arce said.
Bank of America Corp., Barclays Plc and Citigroup Inc. managed today’s sale.
The upgrade to investment grade, “a huge expansion in the oil and gas sectors and a significant improvement in fiscal laws” is driving appetite for Colombia’s financial assets, said Nick Chamie, the global head of emerging markets at RBC Capital Markets in Toronto.
Colombia is opening up unexplored swathes of the country to expand oil production to as much as 2 million barrels a day in 2020, from 930,570 barrels a day in June. The oil and mining industries accounted for 86 percent of the $5.78 billion foreign investment in the year through May, according to the central bank. That compares to $3.68 billion in the first five months of 2010.
Congress last month passed legislation, known as the fiscal rule, that will allow the nation to capitalize on its oil and mining riches, cut its budget deficit and create a fund to cushion the economy during crises. It targets a central government budget deficit of no more than 2.3 percent of gross domestic product in 2014 and 1.9 percent of GDP in 2018, from an estimated deficit this year of 4 percent of GDP.
The law also creates a dollar-denominated rainy-day fund that will maintain excess mining and energy revenue overseas, as the Andean nation seeks to ease gains in the peso. The peso has jumped 7.8 percent this year, the best performance among the six most-traded Latin American currencies tracked by Bloomberg.
Lawmakers also passed legislation in June that ensures “fiscal sustainability” is taken into account under the constitution, so that courts consider the health of the government’s fiscal accounts before awarding payouts.
Colombia last tapped overseas markets in July 2010, when it sold $500 million more of its peso-denominated securities due 2021.
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