Colombia Returns to Junk-Rated Bond Markets, Testing Investors

For the first time in 2024, Colombia is testing the waters of investor appetite for junk-rated emerging market bonds. The country is offering $1.3 billion more of the social notes that are due in 2035 and 2053 respectively, even though the notes were issued in November 2023, with backdowns expected to be at 7.55% and 8.15% respectively. 

The proceeds will be used by the Gustavo Petro administration to fund social programs under the country’s ESG guidelines. Some of these guidelines include reducing 51% of its greenhouse emissions by 2030 in all industries. The objective of these regulations is to increase pressure on investors to comply with climate policies. 

In addition to this transaction, Colombia was involved in another deal in 2023. Furthermore, the bonds were sold last year, in an agreement that saw the nation raise $2.5 billion with coupons of 8% and 8.75%

Is there growing investor confidence in Colombia?

The American credit rating agency, S&P Global Ratings weakened Colombia´s credit outlook to negative in January 2024. The agency declared that Colombia generated a “potentially persistent weak investor confidence”. 

Experts have criticized the current government’s passive approach to fiscal policy and economic growth. Criticism has only strengthened given that President Petro just moved to assert control over one of Colombia´s main health insurers, EPS sanitas. Experts consider this a sign of how Petro will conduct interventions in the private industry. The Health Insurer that saw this intervention, EPS Sanitas, considered the government’s intervention “arbitrary and disproportionate.”

A return to Junk-Rated bond issuers

Despite recent efforts to improve its credit rating, Colombia is still treading the path of issuers with junk ratings. Brazil, Turkey, and the Ivory Coast are among the countries that have successfully issued debt on markets. Junk-rated issuers have been able to conduct these operations thanks to the dwindling of US  rates, and speculation over the Federal Reserve cutting interest rates.

European authorities are managing the deal in Colombia. Deutsche Bank Securities, supported by Frankfurt and Santander, are the main forces driving the deals through.