by Alvaro Ledgard

The Government of Colombia (BB+/Baa2/BB+) completed its 2024 financing program with its latest USD 2.5bn bond issuance and will be looking into financing options with multilateral lenders during the first quarter of 2024, finance minister Ricardo Bonilla told Debtwire.

“We planned this issuance to close out the year. Everything was ready around 15 days before we priced, but we were waiting for the right market conditions,” the finance minister said in an exclusive interview, discussing the first global bond offering of his tenure.

Bonilla said that the sovereign is not planning any new global offerings in the next few months, unlike at the beginning of 2023, when Colombia issued a new USD 2.2bn 2034 bond less than two months after pricing a USD 1.36bn 2033 bond.

“Right now, we are looking at options with multilateral lenders such as KfW, CAF and the IDB,” Bonilla said. There are 13 proposals being discussed at the moment, six of them related to our ministry. If they get congressional approval, negotiations will happen between January and March of next year.”

Last week’s issuance of two sustainable bonds of USD 1.25bn each was seen as evidence that the government’s efforts to regain international investor confidence after the cabinet reshuffle  on 26 April have been successful, according to Bonilla.

Demand for the bonds peaked at USD 12bn, six times the original size of the planned notes. The country also managed to tighten pricing from initial price thoughts of 8.750%-area for the 2035s to a yield of 8.3%, and of 9.375%-area for the 2053s to 8.95%.

The USD 1.25bn 8% 2035 notes last traded at 101.54 to yield 7.798%, according to MarketAxess. The USD 1.25bn 8.75% 2053s traded at 102.210 to yield 8.544%.

“Turkey priced a bond of the same size and similar maturity on the same day. Their deal was also over-demanded and successful, but we got better terms when it comes to rates. The results show that the market has high confidence in Colombia,” Bonilla said.

The new notes were issued to “flatten the maturities curve,” explained Bonilla, noting that Colombia’s maturities were highly concentrated in the next 4-5 years, which the government wanted to spread out to avoid “fiscal limitations.”

The finance minister began taking steps towards regaining the market’s confidence as soon as he entered office, as reported. The market expressed concerns at the time that Bonilla would be more left-leaning than ousted minister Juan Antonio Ocampo, which triggered a 3% plunge in the value of the Colombian peso particularly due to concerns about fiscal responsibility and Bonilla’s willingness to promote new gas and oil exploration.

The results of the first international bond issuance of Bonilla’s administration were seen as key to gauge the market’s perception of Colombia.

“We have managed to get on the same page as investors regarding key concerns they had and to get negative messages off our backs that were created in the past, especially regarding Colombia’s role in the world’s energy transition,” Bonilla said.

“Our country is decidedly not interested in stopping exploration and exploitation projects for oil and gas, the minister said. “We have 17 million acres dedicated to exploration and 4 million to exploitation. We can’t replace the income we generate from oil and coal exports overnight. We have to wait until the energy transition to start moving away from those products and that involves a 15–20-year time horizon.”

As inflation continues to ease around the world, Bonilla also expects Colombia’s central bank to continue reducing interest rates, albeit not as fast as the market expected. On 28 April, Colombia’s Central Bank raised its benchmark rate to 13.25%, the highest level since 1999, to mitigate the COP’s plunge after Bonilla was appointed as finance minister. Rates have not been lowered since.

“The bank was supposed to start cutting rates in September or October but no agreement was reached, Bonilla said. “Inflation is still high. It’s going down, but not at the speed we had hoped because we are still having to deal with the Fuel Price Stabilization Fund (FEPC).”

The FEPC was created in 2007 to address fuel price volatility in the Colombian domestic market through price subsidies. Ecopetrol is expected to receive a payment of USD 2bn from the government for cash contributions it made to the fund.

“The market expects a rate cut of 75bps in December, but it is most likely going to be 50bps. Inflation will keep going down next year but I don’t think it will reach our goal of 3%. Inflation in 2024 will most likely end between 4% and 5%,” Bonilla added.

The minister also noted that direct foreign investment in Colombia has shown a clear recovery.

“It’s still mostly concentrated in the oil and gas sector but it has also reached other sectors like industry and services.”

The foreign exchange rate has also followed a favorable dynamic.

“We dispelled the black cloud of exchange rate reaching COP 5,000 or COP 7,000 per USD. We have stabilized at around COP 4,000.”