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Panama eyes return to foreign bond markets early next year

WASHINGTON, Oct 8 (IFR) - Panama plans to tap the foreign bond markets during the first semester of next year to cover a portion of its funding needs in 2017, the country's finance minister told IFR on Saturday.

The Central American country will raise the US$2.6bn it needs through international and local debt markets as well as with multilaterals, said Dulcidio de la Guardia, Panama's Economy and Finance Minister.

Conditions remain benign for emerging market sovereigns amid an ongoing bid for the asset class, and de la Guardia sees this continuing into 2017, even following a widely expected December rate hike in the US.

"It will continue to be a favorable market," he said. "We don't see any major issues in raising funds for next year."

The sovereign, which is rated Baa2/BBB/BBB, will likely stick to the medium or the long end of the curve, in line with its strategy of issuing paper of 10 years or more in the international markets and tapping the local market for shorter-dated debt.

"Our policy is to have an average maturity of 10 years to reduce refinancing risks," said de la Guardia, noting the country's curve has flattened of late.

Panama's 3.875% 2028s have recently been trading at a yield of 3%, well below their 3.979% pricing level in March. Its 6.7% 2036s are quoted at around 3.9-3.8%, according to Thomson Reuters data.

A plan to consolidate balances across thousands of government accounts at the Treasury level has also allowed the government to more easily access its cash, reducing the amount of bonds it needs to issue each year.

"Because of that we are going to avoid issuing this year US$400m to US$500m," said de la Guardia. "The objective is to avoid issuing the same amount next year."

A liability management transaction may also be on the cards, ahead of the country's next big international bond maturity - a US$1bn bond that comes due in 2020.

"When the time is right we will do a liability management (operation) for that maturity," he said.

A couple of Panamanian infrastructure projects could also tap the international capital markets next year for funding, including a US$1.2bn bridge over the Panama Canal.

The government will provide some equity while the rest of the funding will come through debt.

Banks are already poring over requests for proposals which are due back the first week of November and a mandate is expected by year's end, said de la Guardia.

A syndicated loan is the most likely option given bondholders' dislike for taking on construction risks but a take-out in the capital markets could come later.

The IFC, the World Bank's private sector arm, is also working on the funding for an up to US$700m electric transmission project, he said.

(Reporting by Paul Kilby; Editing by Davide Scigliuzzo)

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