Download Colombian Issuance of Local Currency Bond in the Global Market

Colombian Issuance of
Local Currency Bond in
the Global Market: what
lies ahead
Ana Fernanda Maiguashca
Agenda
•
•
•
The Bond
The Reasons
The Risks
The Colombian has been able to place two
local currency bonds in the international
market The Bond
•
•
•
•
•
•
•
•
Global TES 2010
Coupon: 11.75%
Nov 2004, Jan 2005
Yield 11.875%; 50bp
below local curve
Bid/Cover 2.93
Yield 10.75%; 31 below
local curve
Bid/Cover 2.04
Total Issued US$500 M
•
•
•
•
Global TES 2015
Coupon 12%
Feb 2005
Yield 12.125%;20bp
below local curve
• Bid/Cover 1.6
• Issued US$325 M
THE BOND
13.0%
TES 2010
Average Annual
Yield (%)
Yield (%)
-47.5 bps
Global
TES 2010
11.0%
+505 bps
9.0%
Local TES Curve
7.0%
Global 2010
5.0%
USD Global Curve
3.0%
1
2
3
4
5
6
7
Years
to Maturity
Average
Life
Colombia USD Global
Colombia Local TES
Log. (Colombia USD Global
Log. (Colombia Local TES)
Source: Finance Ministry
8
9
Colombia Global TES
The Bond
13.0%
TES 09/14
TES 04/12
AverageAnn.
Annual
Yield
Yield
(%) (%)
12.0%
TES 02/10
GTES 10/15
11.0%
GTES 02/10
TES 08/08
10.0%
TES 11/07
9.0%
8.0%
7.0%
TES 07/06
TES 09/05
6.0%
2
4
6
8
Life (yrs)
Avg.
Life
Average
Source: Finance Ministry
10
12
The Reasons
• Reduce Currency Risk in Public Debt
EXTERNAL AND INTERNAL DEBT COMPOSITION
100%
90%
80%
70%
60%
50%
40%
30%
Ext (local Cy)
Ext (Fgn Cy)
20%
Internal
10%
0%
1990
1992
1994
1996
1998
2000
2002
2004
Diversification of Investor Base
TES HOLDINGS AS A % OF TOTAL STOCK
45%
40%
Financial System
Corporates
Pension Funds
Public Sector
35%
30%
25%
20%
15%
10%
5%
0%
2001
2002
Source: Banco de la República
2003
2004
2005
Financial System
Investments and Gross Loan Portfolio as a % of Assets
68%
36%
66%
32%
64%
28%
62%
60%
Loans/Assets
58%
Investments/Assets (right
axis)
56%
24%
20%
16%
54%
12%
52%
50%
8%
7 97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 05
- l- l- l- l- l- l- llJu Ene Ju Ene Ju Ene Ju Ene Ju Ene Ju Ene Ju Ene Ju Ene
9
e-
En
Source: Banking Superintendency
Pension Funds
SHARE OF PENSION FUNDS PORTFOLIO IN
LOCAL AND EXTERNAL PUBLIC DEBT
40%
35%
30%
TES
Ext. Debt
25%
20%
15%
10%
5%
0%
01 -01 -01 -02 -02 -02 -02 -03 -03 -03 -03 -04 -04 -04 -04 -05 -05
ay go ov Feb ay go ov Feb ay go ov Feb ay go ov Feb ay
A
N
A
N
A
N
A
N
M
M
M
M
M
Source: Banking Superintendency
Barriers to entry
• Like Brasil, local barriers to foreign
portfolio investment: some explicit, some
distorsions (ex. Taxes)
• Unlike Brasil, the Colombian government
had a local alternative of equal or longer
tenor and duration
Long Local Market
PESOS TES STOCK
BY DAYS TO MATURITY
Sep. 2005
(5Yr - 15Yr]
19%
(180D - 2Yr]
29%
Source: Banco de la República
[0 - 180D]
4%
(2Yr - 5Yr]
48%
Long Local Market
TES STOCK
TOTAL INFLATION PROTECTION
BY DAYS TO MATURITY
SEP 2005
(5Yr - 15Yr];
48%
[0 - 2Yr]; 34%
(2Yr - 5Yr];
17%
The Risks
• Evidence points to importance of
international liquidity conditions and
business cycle in determination of capital
flows (Reinhart 2005)
• Even in presence of stronger
fundamentals, policy makers should shield
from a future crisis
Somethings look better
Non Financial Public Sector Deficit as a % of
GDP
0,0
-1,0
-2,0
-3,0
-4,0
-5,0
-6,0
-7,0
1999
2000
2001
Source: Confis, Finance Ministry
2002
2003
2004
NET FOREIGN RESERVES AS A % OF GDP
15%
14%
13%
12%
11%
10%
9%
8%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: Banco de la República
CURRENT ACCOUNT AS A % OF GDP
2,0%
1,0%
0,0%
-1,0%
-2,0%
-3,0%
-4,0%
-5,0%
-6,0%
1994
1995
1996
1997
Source: Banco de la República
1998
1999
2000
2001
2002
2003
2004
Somethings look similar
BALANCE OF PAYMENTS CAPITAL ACCOUNT
10.000
CAPITAL ACCOUNT
8.000
LONG TERM FINANCIAL FLOWS
SHORT TERM FINANCIAL FLOWS
4.000
2.000
0
-2.000
Source: Banco de la República
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
-4.000
19
USD MLL
6.000
Somethings look larger…
Source: Banco de la República
The Risks
• Reducing currency risk exposure is part of
the strategy: hedging structures and
local market
• Local market is a limited strategy: market
risk is increasing
• In August 2002 some problems of
regulatory framework and supervision
were brought to light
The Risks
• Some of those problems were improved
but there are many others that remain
– Volatility of TES (limited historical information)
– Construction of the VAR model
– Stress Testing for a sustained decrease in
prices and no buyers
– Disclosure of derivative positions
– Disclosure of risk in pension fund portfolios
The Risks
• A failure to monitor and control market
risks could be painful for government
finances: in the 1999 crisis the credit
crunch led credit institutions to the TES
market….if they get hurt in this market
now, the government may face financing
challenges inside when doors are closing
abroad