Makes changes throughout
Guatemala became the second Latin American sovereign to tap the dollar bond market in a matter of weeks on Tuesday as the region's governments rush to raise funding to fight the Covid-19 pandemic.
The sovereign is poised to raise US$1.2bn, a US$500m through a 12-year social bond to counteract the impact of the virus, and other US$700m through a tap 6.125% 2050s.
The bonds comes just weeks after Peru tapped the dollar market for US$3bn, funds that were also slated to soften the blow of the health crisis.
Like Peru, Guatemala's deal proved a hit among investors starved of Latin American paper after months of little to no issuance with books swelling to US$8bn earlier in the day.
That demand allowed sole lead Bank of America to tighten pricing a good 50bp from start to finish before landing the 12-year at 5.375% and the tap at 6.125%.
With Guatemala's existing 4.90% 2030 notes trading at around 4.76% as of early Tuesday, INTL FC Stone analyst Rafael Elias thought final pricing attractive.
The tap also came with a premium to the secondary market, where the 2050s were being bid on Monday at around 5.75%, according to a bank away from the deal.
Investors also see the sovereign's fiscal position as comparatively strong, a buffer that should help it weather the health crisis.
"Guatemala is a pretty solid credit and has important buffers," said a New York-based investor.
The country has enjoyed current account surplus of about 1.7% of GDP, said a London-based investor, providing a boost of confidence in the credit.
"So even if it [account surpluses] swings into deficit, it won't be huge," he said. "That helps to explain the stability of the currency."
Even so, the deal comes after Fitch downgraded Guatemala to BB- from BB earlier this month, as the Covid-19 outbreak stretches the country's finances amid ongoing political gridlock and lower tax revenues.
The rating agency sees GDP growth grinding to a halt this year after a 3.5% expansion in 2019, and the fiscal deficit rising to 3.8% of GDP in 2020, up from 2.3% last year.
"The health crisis is likely to increase government expenditures, adding pressure on an already-growing deficit," Fitch said.
Remittances, which help offset the trade deficit, have also been on the radar as the recent growth in such flows are likely to slow.
"[Guatemala's] expectation that remittances would grow 5% this year seems to be fraught with a decent amount of downside risk," said the UK investor.
Remittances grew to 13.3% in 2019 and are a strong part of the reason why the country runs a current account surplus, he added.
Guatemala was last in the market about a year ago in May 2019. At the time it sold US$1.2bn in a two-part deal comprising of the 6.125% 2050 bond it is currently tapping and 4.9% 2030 note.
Proceeds from Tuesday's social bond will finance eligible social investments directly or indirectly related to Covid-19 prevention, containment and mitigation efforts and/or seek to achieve positive social outcomes in Guatemala within the context of the pandemic or otherwise.
The 144A/RegS senior unsecured bonds area rated Ba1/BB-/BB- and are expected to price later on Tuesday.