Flash Fixed Income Report /

Paraguay: Bioceanico's zero coupon bond launched; priced cheap

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    10 May 2019
    Published by

    Bioceanico Sovereign Certificate Ltd (PARCRT), a security structured as a senior secured zero-coupon bond backed by the full faith and credit of the Republic of Paraguay, with a 2034 maturity but an average life of c8.2 years, was priced at US$63.619 to yield 5.375%.

    The amount issued was US$732.226mn, and was rated Ba1//BB/NR, similar to the Republic, which is rated Ba1/BB/BB+. 

    For comparison basis, Paraguay's US$500mn 4.70% sovereign bond due 2027 trades at cUS$104.131 (ALLQ) to yield c4.08% (g-spread 173bps; z-spread 174bps). This bond has a duration of 6.659 years.

    Similarly, Paraguay's 6.10% sovereign bond trades at cUS$111.962 (ALLQ) to yield c5.24% (g-spread 248bps; z-spread 268bps) and has a duration of c13.65 years.

    We believe that the spread of the new certificates is attractive on both an absolute and relative basis. We see them already trading up, with the latest price at US$65.00 (ALLQ), to yield 5.10% (g-spread 274bps; l-spread 275bps).

    We see these certificates converging to the Republic's 2027 bonds' spreads at a premium to account for the longer duration and the quasi-sovereign status of these securities, and believe they will trade at c4.50% in the short term.