Panama could be considered the anti-Mexico. Both are stable Latin American countries with strong currencies (Panama is dollarized) but their borrowing strategies couldn’t be further apart. Mexico, Euromoney’s best sovereign borrower this year, is a huge issuer that likes to set big benchmarks and make big, splashy announcements in the market, like being the first country to include collective action clauses in its bonds, or being the first to retire its Brady debt.
Panama, on the other hand, is small and much more discreet. It has a quiet debt team, led by vice-minister of the economy Domingo Latorraca, which is highly professional and gets the job done with a maximum of efficiency and a minimum of political noise. The government is clear about what its foreign debt issuance goals are and it sticks to them: it won’t do an opportunistic deal if that isn’t in the game plan. At the same time, however, it’s very sensitive to market conditions.
When the market was extremely rough in July 2002, for instance, Panama wanted to raise $250 million in order to complete its financing needs for the year. But investors – many of which were extremely worried about the forthcoming Brazilian elections – were nervous, and Panama was completely sanguine about downsizing the deal. It decided to reopen its 2012 bonds by $150 million, and knew that if the deal went well it could probably do a second reopening within a couple of months.
JPMorgan lead managed the deal, which priced at 531 basis points over US treasuries, keeping the yield below 10%. The money brought Panama up to 90% of its financing requirements for the year, and since the bond was opened and closed quietly, within one hour, it didn’t affect the Panamanian yield curve at all.
Panama’s patience paid off, and it reopened the 2012s a second time in September, once again through JPMorgan, for $170 million. The yield this time was 9.73%, 24bp lower than where the country had issued in July.
By the time November rolled around, Panama was ready for a big, blow-out deal. Risk appetite was returning to the market, yields were low, and there was a good opportunity to do some liability management as well, retiring old Brady bonds.
The country decided to go for the maximum it was allowed to issue at the time: a $430 million 20-year deal through JPMorgan and Morgan Stanley. Panama knew what it was doing: this deal, too, was placed within an hour. The bond killed a lot of birds with one stone: two-thirds of it was earmarked for a Brady exchange, generating net present value savings, and the other third was prefinancing for Panama’s 2003 funding needs. What’s more, the new 2023 bond helped to iron out a bump in Panama’s yield curve, which was very steep between 2010 and 2020, and then inverted between 2020 and 2027.
The low yield of the 2027s proved irresistible a couple of months later, in February, when an unexpected increase in its financing needs for the year brought it back to the market one last time. It decided to reopen the benchmark 2027 bond for $275 million through Morgan Stanley, and do so at a yield lower than where the new 2023s were trading. In fact, the 2027s came 30bp through the 2020s, which trade unnaturally wide because of their high 10.75% coupon.
What is really impressive is that a country that has come to market many times in one year, like Panama, was still able to play the rare issuer card: to persuade investors that they really ought to buy its bonds now, since who knew when the next deal would come along.
Investors aren’t complaining: Panama has been trading wonderfully all year, and anybody holding it has made a very healthy return. Anybody not holding it is going to have to buy the paper on the secondary market, however: with its financing needs completely finished for the year, there’s very little chance that Panama will issue again in 2003.
