Costa Rica

Costa Rican utility wants to refinance bond maturing in November

International bonds issued by El Salvador and Costa Rica are proving to be a sweet spot for EM investors, with the notes extending their rally this week as both countries look closer than ever to signing IMF programmes. But there are risks to the positive credit narratives driving the performance of both sovereigns, analysts warned.

Despite funding stresses in certain Latin American countries, bond markets will continue to help the region with its financing needs. For now, this eases the pressure for reform and fiscal consolidation, but issuers must eventually face up to political and social turbulence. Oliver West reports.

Costa Rica’s finance ministry said on Monday that it planned to begin discussions over a new $1.75bn IMF programme in the second week of January. But though an agreement would likely drive a rally in the sovereign’s bonds, Fitch Ratings warned it would not remove debt sustainability pressures.

Costa Rica’s bonds have fallen this week after the government cancelled a proposed tax hike that it was planning to bring to discussions with the IMF. The bonds could still be vulnerable as analysts say there remain questions over the viability of a programme with the Fund.

Government-owned lender Banco Nacional de Costa Rica (BNCR) will use cash to finance a buy-back for a portion of senior bonds maturing in 2023, sources close to the borrower told GlobalCapital on Tuesday.

As the highest yielding sovereigns in Latin America — excluding those explicitly on the path to restructuring — bonds from El Salvador and Costa Rica have finally caught a strong bid. But fiscal fundamentals are deteriorating sharply.

For yield-hungry bond buyers, Central American sovereigns El Salvador and Costa Rica have proved irresistible in recent days. But as political infighting in both countries hampers fiscal consolidation efforts, fiscal fundamentals could cause creditors concern for years to come.

Just two days after completing the country’s largest ever international bond issue, Costa Rica’s finance ministry said it would seek approval for a further $4.5bn of issuance once the new minister takes office at the end of the month.

Central American sovereign Costa Rica left some analysts wondering where they would find value in the market after tightening pricing well inside pre-deal expectations.

Market participants expect Costa Rica will have little trouble completing a crucial bond issuance next week, with the lack of high yielding sovereign assets in Latin America expected to favour a country that has worked to improve its outlook this year.

Latin American bond market participants away from Costa Rica’s proposed $1.5bn cross-border issue said they thought the deal would find strong demand as the Central American nation announced a roadshow amid friendly market conditions on Tuesday.