LatinFinance - January/February 2015 - 30

CENTRAL
AMERICA
HONDURAS

A new IMF program in Honduras could be good news for debt investors
and for local borrowers seeking international funding. By James Fredrick

Turning point

aime Rosenthal, president of
Grupo Continental, one of Honduras' largest business groups, tells LatinFinance his
company is seeking financing for infrastructure projects in the country. But it isn't easy.
"Honduras is in a deep crisis," he says.
Violence fuelled by drug trafficking is the
most shocking part of the country's problems. Honduras has the world's highest
murder rate, running at around 80 a year
per 100,000 people, according to the UN.
Yet Rosenthal - one of Honduras' richest
men - says the country's biggest problem is
the lack of domestic capital, and the difficulty of accessing funds externally. "There
isn't enough internal savings to cover the
country's financing needs," he says.
Grupo Continental has, moreover, tried
but failed to access funding from foreign
export credit agencies, he says. Even with
US Treasury rates at record lows, he says
US investment banks can only offer bonds
at interest rates of about 9.5% for five-year
money, or 9% for three-years.
"This is completely out of our affordability range," he says.
With a long-awaited IMF facility approved on December 3, however, many in
Honduras are hoping some stress will come
off the government's finances, and private
sector institutions like Continental will
find it easier and more affordable to access
external funds.

30 L ATINFINA NCE.COM - January/February 2015

"The decision of the IMF sends a message to the investment world, to the whole
world, that there is credibility in what [Honduras] is doing and credibility in the financial and economic systems of the country,"
President Juan Orlando Hernández said
when the deal was announced.
Analysts agree that the biggest impact of
the IMF agreement could be the message it
sends to investors about the government's
commitment to putting its finances on a
more sustainable footing.
The program comprises a $113.2 million
stand-by arrangement and a $75.4 million
stand-by credit facility. Just under $60
million is available immediately, with the
remainder coming in six tranches, after
semi-annual reviews of the country's progress in consolidating its fiscal position and
implementing structural reforms.
"The very fact that the IMF signed off on
a new program is an indication that it recognizes that the government is committed
to the cause and will stay the course," says
Franco Uccelli, Latin America and Caribbean economist for JPMorgan.

FRANCO UCCELLI, JPMORGAN

"THE VERY FACT THAT
THE IMF SIGNED OFF
ON A NEW PROGRAM IS
AN INDICATION THAT
IT RECOGNIZES THAT
THE GOVERNMENT IS
COMMITTED TO THE
CAUSE"

Honduras has two bonds in the international markets. It debuted in March 2013,
selling a 7.5% $500 million 2024 bond. In
December that year, the country returned
to the market to raise another $500 million
via a 2020 note with an 8.75% coupon.
With US Treasury rates still low, and an
IMF program in place, Honduras' international debt will look more attractive, says
Uccelli. "Whenever investors are looking
for yield, they're trying to find [...] an
improving credit story," he says.
"Despite tightening considerably since
its two outstanding global bonds were
issued in 2013, Honduras is still yielding
north of 6%," says Uccelli. "[That's] slightly
higher than the average for emerging markets and regional peers such as the Dominican Republic, Guatemala, and Panama."
A clear signal of change from Honduras
had been sorely needed. The country's last
IMF program expired in 2012.
Meanwhile, on February 27 last year, one
month to the day from President Hernández's inauguration, Moody's cut the sovereign credit rating from B2 to B3. That was
around six months after Standard & Poor's
cut the country's rating from B+ to B.
Wilfredo Cerrato, the finance minister,
was reported saying in March last year that
the country planned to raise another $1
billion in international bonds. By the end
of November, Honduras had neither a new
Eurobond, nor an IMF deal.In 2015, Uccelli
says the country could try to access markets
again to refinance debt, although even this
could be difficult. "If they manage to spin [a
bond sale] as a liability management operation of sorts, that would increase the probability of success," he says. "If it's simply for
deficit financing purposes, the market may
have a different take on it."

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