Deals of the YEar awards
The Dominican Republic’s government got to do something in 2022 that most countries can only dream about when it comes to their annual budget.
The government went to Congress to ask to reduce, rather than increase, the amount external funding authorized in the budget. This was possible thanks to the country’s rebounding economy and a $3.6 billion liability management operation that proved even more successful than expected.
“The transaction helped in the sense that last year we actually had to reformulate our budget to decrease the financing needs that were approved. This was significant, because traditionally in the Dominican Republic when you do a reformulated budget it is to increase the amount of funding, not decrease it,” says Deputy Finance Minister María José Martínez.
The decision to go to the market was risky, with the window narrowing by the day. The transaction, which wins the award for Sovereign Liability Management of the Year, was launched in mid-February, as noise in the market began to reach a fever pitch over Russia’s impending invasion of Ukraine and the prospect of rising interest rates. The Dominican Republic priced the bond on February 16, a week before Russia’s invasion and a month before the Federal Reserve raised its benchmark rate for the first time since 2018.
“We not only raised the money at decent rates, but accomplished a liability management in such a volatile environment, which showed a great deal of trust in us given the global circumstances,” says Martínez.
The dual-tranche offering, with Citi and J.P. Morgan as bookrunners, was the largest U.S. dollar issue by the sovereign and its biggest liability management operation on record. The first tranche raised $1.782 billion in 7-year notes with a coupon of 5.5%. The second tranche raised the same amount, but in 11-year notes with a 6% coupon. The offering, the 22nd time the sovereign has tapped international markets, was oversubscribed 2.5 times.
The new offering, with its many firsts, is part of the Dominican Republic’s strong recovery story. The country’s economy contracted by 6.7% in 2020, the worst year of the pandemic, according to data from the International Monetary Fund (IMF), but bounced back by 12.3% in 2021; the IMF forecasts 5.3% growth in 2022 and a similar expansion over the coming years.
The December 2022 reports from rating agencies reflected the country’s stability. S&P Global said that the Dominican Republic “posted an impressive economic recovery, not only surpassing pre-pandemic income but also resuming its long-term trend growth.” Fitch, for its part, cited a “track record of robust economic growth, a diversified export structure, high per-capita GDP and social indicators, and governance scores that compare favorably to peers' after sustained improvement in the past decade.”
Fitch also pointed to a decline in the government’s debt-to-GDP ratio, which declined to 46.7% as September 2020 from 50% at end-2021.
Signs of the country’s growth trajectory are evident in the construction sector, as hotels and homebuilding soar. The construction boom is such that the Dominican Republic is now the top market in Latin America outside of Mexico for Cemex, the global cement company.
“Tourism, housing and infrastructure have just taken off. The Dominican Republic is very stable. We are very confident about investment there,” says Maher Al-Haffar, Cemex CFO. LF
Joint Bookrunners: Citi; J.P. Morgan
Issuer's Legal Counsel: Cleary Gottlieb
Underwriters' Legal Counsel: Simpson Thacher
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