Issuance of Global Bonds for USD 1.3 bn reveals a drastic change in financing strategy

DOMINICAN REPUBLIC - In Brief 17 Jul 2018 by Pavel Isa

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Last week the Dominican Republic placed bonds with 10 years to maturity in the international market for USD 1.3 bn at 6%. It was a surprise because that issuance put the total amount placed in the year at USD 3.122 bn, USD 1.022 bn above the indicative ceiling set forth in the budget law of 2018 for Global Bonds. The placement is not illegal because the budget law gives the Ministry of Finance freedom to decide the proportions it places in the local market or in the international market, and in securities denominated in domestic or foreign currency, provided that it respects the total amount authorized issuance of securities that was about USD 3.5 bn. However, the operation reveals a drastic change in the financing strategy. The issuance in the domestic market will not reach a third of the expected level and that for international market will be almost 50% higher. The clearest explanation for the change in strategy is the need for fresh foreign exchange revenues at a time when international reserves are declining and oil prices are high. Another explanation is that a domestic issuance would have placed a lot of pressure on the market and that the interest rate at which the securities could have been placed would have been very high, in a context of "normalization" of monetary policy and of increases in interest rates. In our next report we will try to shed more light on this change of strategy.