QUITO, Bolivia — Bolivia’s first international bond sale in almost a century is turning into a cautionary tale for fixed-income investors trying to bolster returns with the riskiest emerging-market debt.
The nation’s dollar notes due in 2022 have returned 1.3 percent since being issued in October, less than half the 4 percent gain for junk-rated sovereign debt in developing nations. Among countries rated BB- by Standard & Poor’s, yields on Bolivia’s notes have fallen 0.11 percentage point, versus a decline of 1.12 percentage points on Serbian bonds and a 0.5 percentage-point drop for Ukrainian debt.
Two months after persuading investors to lend South America’s poorest nation a half-billion dollars for 10 years at 4.875 percent, Bolivian President Evo Morales seized local units of Spain’s Iberdrola, at least the 15th takeover since he assumed power in 2006. While the nationalization risk was outlined in the prospectus, investors facing record low rates in the U.S. and Europe demanded more than eight times the amount offered. Mexico, Latin America’s second largest economy, paid twice the rate for a 30-year global bond in 1996.
“It’s surprising that a country with such political risk as Bolivia has, which is the big weakness for our credit rating, can place bonds in international markets below 5 percent,” Cesar Arias, an analyst at Fitch Ratings, said by telephone from New York. “Low international interest rates are resulting in low yields for highly speculative-grade countries.”
Fitch rates the Bolivian government notes BB-, or three levels below investment grade.
Bolivia’s Finance Ministry didn’t respond to telephone or e-mail messages seeking comment on the country’s bonds.
Investors who bought the Bolivian notes were paid 3.06 percentage points more than comparable U.S. Treasuries, according to data compiled by Bloomberg. Similar-rated El Salvador paid a premium of 4.2 percentage points over Treasuries when it issued $800 million of bonds due in 2025 in December.
Morales, an ally of Venezuelan President Hugo Chavez and a former union leader who has moved to put the telecommunications, energy and water industries under state control, ordered army and police to seize four of Iberdrola’s units on Dec. 29 in a bid to create what he called “egalitarian electricity rates in rural and urban areas.”
In June, the government nationalized the Colquiri tin and zinc mine owned by Glencore International.
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