JP Morgan Recommends Investors to Buy Panamanian Debt

Note: this is just a translation of a news article appearing in La Prensa newspaper in Panama on 13 July 2016. The article is authored by Roberto Gonzalez Jimenez and is the property of Corprensa. The British Chamber of Commerce in Panama does not claim ownership of the contents of the article, just the translation presented below.

 

The American investment bank JPMorgan Chase & Co. improved its recommendation on Panamanian debt.

The institution indicated to investors that Panamanian securities can revalue over time, while the economy continues to be one of the best performing.

One of its emerging markets analysts, Franco Uccelli, said that real financial impacts for the country from the Mossack Fonseca case will not be very severe.

Meanwhile, “everything that has sustained growth in the country is still there, and will continue to stay,” assured the analyst.

The Panamanian economy is the fastest growing in Latin America this year, with a growth rate of 6%, according to estimates from the International Monetary Fund (IMF).

MEF will Mitigate Refinancing Risk

The Public Financing Department of the Ministry of Economy and Finance (MEF) announced the buyback of up to $300 million of a Treasury note, which matures in 2018. The foreseen date of the buyback is 26 July and the settlement date is 29 July.

The investors that own these securities can decide whether to accept the Government’s offer and receive their investment and return now, or wait until the note’s maturity in 2018.

This liability management exercise will be carried out with the objective of partially reducing the amount of that debt (which is currently at $993 million) and not have to face a large pay-out in 2018.

The Government of Panama could seek out funds from the market within two years to refinance, but risks that conditions will be worse then than they are today.

Finance expert Alvaro Naranjo said that these types of operations are usual for governments. He emphasised that given the low interest rates that exist in the markets, this is the best time to issue bonds.

The MEF received authorisation to carry out the buyback by Cabinet Decree 20 of 24 May 2016. In fact, the permission covers the $993 million in circulation of the Treasury Note 2018, although for the time being the Department of Public Financing has announced the buyback of only $300 million.

Apart from that, the Cabinet authorised the issuing of new Treasury notes or bonds, or the re-opening of Treasury Bonds with maturity in 2022, 2024, and Treasury notes with maturity in 2021, which are all instruments that exist in the market with values up to $1.1 billion.

Aside from mitigating re-financing risks, the MEF could use part of the funds to cover its financing necessities for the fiscal year.

At the closing of the month of May, the total amount of internal debt in Panama was $4.745 billion, which represents 22.1% of the total debt of $21.415 billion.

The Department of Public Financing and the MEF have pointed out in various occasions that the investigation of the law firm Mossack Fonseca, which put Panama’s name in various international media outlets for alleged misuse of offshore accounts, has not had a negative impact in the quoting of Panamanian debt instruments in international markets.

In fact, bond yields reached lows last week, an example of how investors consider these securities to be safe.

The investment bank JP Morgan elevated the rating of Panamanian debt and recommended its investors to acquire these securities.

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