Guatemala jumps back into the bond market

After going three years without emitting bonds, the Central American state hopes to find some breathing room by putting some up for sale.

In an effort to refinance debt and compensate for budget deficit, Guatemala issued $700 million U.S. dollars in bonds. The 10-year notes will reach maturity in May 3 2026, and are expected to yield 4.6% to investors, the lowest in Guatemala’s history.

Risk assessors were not particularly kind when considering the first emission of Bonds in 3 years for Guatemala.

Moody’s assigned a Ba1 rating, which means that although Guatemala is more credible than lower-rated creditors, it faces “major ongoing uncertainties and exposure to adverse business, financial or economic conditions” which may lead to difficulties when needing to comply with its financial commitments.

In its press release, Moody’s expressed concern towards the future and assigned the bond a ‘negative’ outlook, on top of the Ba1 rating. Recent corruption scandals and manifestations on the streets put future prosperity in doubt. Recently appointed president, Jimmy Morales, is also considered a risk factor, as he faces many challenges to governance with “a highly fragmented congress and the risk that corruption scandals could re-emerge.” On top of that the ratings company cited “poor development indicators, low levels of education and the low quality of infrastructure hinder the country's competitiveness, limiting Guatemala's economic strength.”

Still, Moody’s had positive views on current monetary and fiscal policies, which were described as ‘prudent’, and were the reason why the Ba1 rating was assigned, despite relative institutional weakness when compared to other creditors under this rating citing that “Strict expenditure controls have led to moderate budget deficits and low debt ratios, despite low government revenues. A manageable debt burden and the prevalence of multilateral funding, which contribute to low rollover risks, are elements that support the rating.

The new bond emission should still be a welcome change of pace for the Guatemalan economy, which will help it develop new connections abroad. A successful experience with this ten year notes should also help cement its position as a trustworthy creditor, and will demonstrate goodwill towards the international markets, a useful asset, especially for a country in dire need of credit and investment.

LatinAmerican Post |

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