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Panama Bonds Attractive to World Markets

By Juan Carlos Martinez

Panama Bonds are still hot in world financial markets. When Panama issued the Panama 2020 bonds it immediately got orders from the US and Europe for 80% of the issue. It is interesting to understand why Panama would attract such interest amidst such a multitude of instruments existing in the finance markets today. These Panama bonds represent the sale of Panama´s external debt. Before that, Panama had issued Brady bonds during the government of ex-President Guillermo Endara following the Noriega dictatorship.

The issuance of bonds provides the country with much needed liquidity and they are a safe investment however they are not for every investor if compared to term deposits. First off they are a long term investment in terms of return of capital and bear some degree of risk as the payment depends on the financial performance of the issuer. In the case of Panama bonds they expire in 2020 or 2034 depending on the issue however on the other hand to compensate for the higher risk the return is greater than that of a term deposit as they pay over 5% while term deposits are paying approximately 3% interest. Based on these characteristics plus the risk rating and the historical performance of the country´s bond payments, Panama bonds constitute a very interesting investment for skilled investors.

Panama as a debt issuer in terms of bonds has always showed a good performance in the payments and redemption of the bonds on their expiration date. In addition to this investors also consider the rating issued to the country´s paper by international ratings companies such at Moody´s, Standards & Poor or Fitch. For these companies to issue ratings the country as bond issuer must periodically submit financial reports and strategies for fiscal management of the country which are reviewed and analyzed by financial experts, providing investors with assurance that their investment is safe.

In this sense there are some things that Panama is doing and must carry on doing to maintain its good standing in the international market. In the first place Panama must continue to manage its external debt and its fiscal situation very conservatively in order to keep the confidence of investors in the long term. It must also work to obtain an investment grade qualification from the international ratings company such as Standard´s & Poor. To further this Panama has recently contracted international firm JP Morgan Securities Ltd. to advise it on a strategy to keep and improve the risk rating for Panama and get investment grade rating. The government plans to obtain investment grade title by this year 2010. This advisory is to cost $300,000.00 and will finalize at the end of the year.

To be make its paper even more attractive to investors Panama must also consider paying out and accepting the use of other strong currencies such as the Euro in addition to the dollar this would give the country more flexibility and attract more investors.

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