Uruguay returns to the international bond market on Thursday (Dec. 2) with the sale of yen-denominated notes in Asia in a five-part deal with rates based on Japan’s Tonar, according to Cbonds.
The South American sovereign issuer has set the price guidance between 45bp-60bp over the Tokyo Overnight Average Rate (Tonar) mid-swaps for the three year notes, 65bp-80bp for the five year notes, 80bp-95bp for the seven year notes. The pricing is scheduled for Dec. 2 and the deal should settle on the 9th.
The fixed-rate yen bond (Samurai bond) is likely to be rated at Baa2 by Moody’s and at BBB by Japanese agency R&I, Cbonds reported.
The South American nation of 3.5 million has mandated the Japanese investment banks Daiwa and Nomura to act as bookrunners and lead managers.
Samurai Bond Market was opened in 1970 when the Japanese Ministry of Finance authorized supranational and highly rated foreign government entities to issue Samurai bonds within certain size and maturity restrictions
The Asian Development Bank issued the first Samurai bond in November 1970. According to the Bank for International Settlements (BIS), it was a seven-year bond worth 6 million yen and the bond was accepted very well in the market
In 1972 the first non-Japanese 10 billion yen bond was issued by Australia. In 1979, Sears, an American chain of department stores, made the first corporate Samurai bond issue for 20 billion yen.
Historically, American financial companies have been the main issuers of samurai bonds due to their popularity among Japanese investors. Advantages of samurai bonds include: access to liquid capital from investors in Japan; interest of conservative Japanese institutional investors in investing in large foreign companies with an international presence and high credit ratings; and ability to hedge currency risk.
Uruguay Emerging-Market Bond King in 2020
Last year, Uruguay’s dollar bonds outperformed all their emerging-market peers, having returned 14.8%, more than double that in China and Russia, according to the Bloomberg Barclays Emerging Markets Hard Currency Index.
According to analysts, Uruguay’s high ranking in Environmental, Social, and Corporate Governance (ESG) indicators and President Lacalle Pou’s five-year budget helped bonds outperform. The plan seeks to cut unsustainable pre-Covid deficits that credit rating companies have flagged as a risk to the nation’s investment grade status.
Unlike most Latin American countries, the Uruguayan budget bill is a five-year program with yearly revision bills. Uruguay has also been traditionally characterized as one of the most stable and representative democracies in Latin America.
Uruguay’s economy expanded 11.3% year-on-year in the second quarter of 2021, rebounding from an upwardly revised 3% contraction in Q1. It was the first GDP growth since the third quarter of 2019, as consumer spending rebounded (8.1% vs -4.6 percent in Q1) and both government expenditure (17.2% vs 6.4%) and gross fixed capital formation (31.7% vs 9.8%) advanced faster. Meanwhile, exports climbed 23.7% (vs -11.8% in Q1) while imports jumped at a faster 36.2% (vs -3.3% in Q1).
However, the annual inflation rate in Uruguay increased by 7.89% in October from 7.41% in the previous month.
