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Bond swap in Uruguay to stretch debt terms
La Nacion
June 27, 2008

By Nelson Fernandez in Uruguay

It includes titles US$ 2.911 billion

MONTEVIDEO.- Stock and bank traders in the Uruguayan arena are calling their clients who invest in sovereign bonds to consider if they want to enter or not into a new plan for a public debt swap that has just been launched by the government of Tabare Vazquez.

The economic team, led by Minister Danilo Astori, has given priority to a professional debt manager, with permanent attention on the opportunities in the market to extend terms and pass the bonds of the eastern Treasury to local currency.

Yesterday in the afternoon, the deadline passed which had been given to the provisional investment funds, but the government won't report on the results until the deadline passes for private investors to join the plan. The director of the Debt Management Office, Carlos Steneri, said that it's necessary to allow some days to pass for private investors, for the communication from the intermediating agents (banks and traders) to their clients. This deadline will pass on Wednesday of next week. Among those clients, there are many Argentine investors that for many years have had Uruguayan state bonds in their portfolios, which have generally paid attractive interest rates (not too high) and that various government have worried about complying with their payment.

Appropriate time

The financial crisis of 2002 put the government of Jorge Batlle on the verge of default, but with the help of international organizations he managed to design an exit plan that included a voluntary swap that didn't hurt investors, like had happened in other countries.

The plan launched now is going along the same line to lengthen the schedule of maturities. The swap includes debt for US$2.911 billion in global bonds (that quote on the international market) and local bonds (which operate only on the Montevideo exchange and on the Electronic Exchange of Uruguay) with maturities between this year and 2015.

The agent for the operation is Citigroup, a bank with which the government worked during various weeks to design the plan, while it was decided to wait until the international markets "calmed down." "It's likely that the situation on the world markets will not improve, but it's possible that they could get worse, for that it was understood that this is the moment to come out with the plan, in a way that would be beneficial for the government and also for investors," one Uruguayan government official said, who worked on the operation.

The plan includes among the titles for swap 27 series of bonds that are quoted on the local market for US$2.108 billion, and 14 series of international bonds for US$803 million. The local bonds are mostly emitted in a measured method adjusted for inflation and a third are in dollars. The international bonds are mostly in dollars and 16% of the total are in Euros.

For the local offer, the investors in dollar bonds could choose to swap them for Global 2036 in dollars, with an interest rate of 7.625%, or for Global 2030, in "indexed units" (UI) that will be emitted on July 8th with interest plus one over inflation. Those that have local bonds in UI only can swap them for the new 2030 bond (also in UI).

The Uruguayan Economy Ministry fixed repurchase prices for each bond, in a way that the investor will have an incentive to enter the swap plan. In the international offer, the swap of global bonds in dollars or Euros could be done for Global 2036 in dollars.