High-yield: Bolivia returns with a bang
First international sovereign issue for 90 years; Aftermarket performance disappoints
Bolivia’s long-awaited return to the international bond market demonstrated international investors’ continuing scramble for yield and the large amount of liquidity on offer to Latin American issuers. The sovereign managed to attract $4.25 billion of demand for its $500 million, 10-year transaction and priced at par with a 4.875% coupon – just US treasuries plus 306 basis points. The deal was marketed as a debut for the country but was in fact the first for 90 years.
Bolivia has strengthened its fundamentals in recent years. GDP doubled between 2005 and 2011 during which time the country reduced the proportion of its population living on $1 a day to 24% from 38%. Since 2006 the government has used high commodity prices to lower total public debt, which now stands at 32% of GDP compared with 52% in 2006 and 86% in 2003. Total external debt is now 13%, down from 28% in 2006, and international reserves have grown by 700% to more than $13 billion.
The credit rating agencies have upgraded the country on the back of these improving ratios, with Fitch the latest to improve its rating, to BB-, in early October, citing "strengthened external buffers, improved sovereign debt profile and greater diversification of financing sources".
However, despite the huge demand for the Ba3/BB-/BB- trade, some investors questioned the pricing, pointing to Venezuelan paper that yields over 10% and, despite being a slightly weaker credit, has a strong payment history. Bolivia’s recent track record of economic orthodoxy – and the fact that the government didn’t need to raise this money but was driven by a desire to reintegrate with the world’s capital markets – suggests that repayment shouldn’t be an issue. However, before president Evo Morales came into power in 2006 the country had had five presidents in four years. The country is also prone to an impulse to nationalization of its core natural resources industries and is heavily reliant on exports to just two markets: Argentina and Brazil.
Bolivia and the deal’s bookrunners, Bank of America Merrill Lynch and Goldman Sachs, managed to persuade investors to override any political-risk concerns and built a sizeable book, with 43% of the paper going to investors in north America, 29% to Europe, 2% to Asia and the Middle East and a notably strong allocation of 19% to the rest of Latin America. But the bonds fared poorly in the aftermarket, falling to 99.25 – or a yield of 4.94% on its first day of trading, suggesting investors were rethinking the lack of political premium priced into the deal.