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Banco Continental Paraguay is canceling its $200 million bond offering after the South American country’s president was ousted from office, chief financial officer Eduardo Cespedes said.
Bondholders will be returned their money from the June 20 sale, Cespedes said in a telephone interview from Asuncion, Paraguay. The banks managing the sale, Citigroup Inc. and Bank of America Corp., decided to scrap the sale while Banco Continental was willing to complete it, he said.
“We would have liked to go forward,” Cespedes said.
While pulling an international bond sale is common before underwriters finish allocating the securities to investors, it’s unusual for a deal to be scrapped on the day it was scheduled to settle. The five-year bonds had sunk more than 7 cents since the offering to 92.26 cents on the dollar as the June 22 impeachment and removal of President Fernando Lugo undermined investor confidence in the country.
“I’ve never seen this happen,” said Marco Aurelio de Sa, a director at Credit Agricole SA in Miami who’s been working in emerging markets since the 1990s. “I can’t recall any situation like this.”
Zia Ahmed, a spokesman at Bank of America in New York, and Danielle Romero-Apsilos, a spokeswoman for Citigroup in New York, both declined to comment.
The bonds offered an 8.875 percent interest rate and were sold at par in Banco Continental’s first-ever overseas offering. The yield surged to over 11 percent yesterday as the price plunged in secondary market trading, according to data compiled by Bloomberg.
“Buyers are off the hook,” said Carlos Legaspy, who manages about $300 million at Precise Securities in San Diego. He said he didn’t purchase the securities. The “losers” in the transaction are investors who were betting on a drop in the price of the bonds and Banco Continental “because they couldn’t raise money in the terms that they wanted to,” he said.
Banco Continental, Paraguay’s second-biggest bank, issued the bonds two days before lawmakers removed Lugo, a 61-year-old former Roman Catholic bishop, on the grounds that his land redistribution policies encouraged property seizures and fomented violence.
The bonds were scheduled to settle today, according to data compiled by Bloomberg. The bank will look to return to the bond market within 60 days, Cespedes said.
Standard & Poor’s put Banco Continental’s BB- rating under review for downgrade today, a day after making the same move on the government’s ranking, which is also BB-, or three levels below investment grade.
The move “reflects the rising credit risks resulting from the possible political and economic ramifications of the abrupt change in government,” S&P said in a statement.
Opponents of Lugo, who took office in 2008, blamed him for mounting violence that culminated on June 15, when a shootout between landless peasants and police left 17 dead, including six officers. Vice President Federico Franco, an ally turned critic, was sworn in as president on June 22 as riot police held back thousands of Lugo supporters gathered outside Congress.
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