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EM LATAM CREDIT: Republic of Panama (PANAMA; Baa3neg/BBB-/BB+)

EM LATAM CREDIT
Bullet

From early October 2024, 10 year Panama bonds widened about 90 basis points leading up to Moody’s move to outlook negative on the Baa3 rating earlier this month, likely triggering some forced selling by those who can’t hold high yield rated bonds. Economic growth has been better than expected according to Fitch, but fiscal concerns remain. At these spreads HY ratings seem to be priced in.

  • The closing of a copper mine in Panama for environmental reasons blew a hole in the government budget to the tune of 5% of GDP. That also left a much stronger reliance on the Panama Canal to support government expenditures, including a Social Security system deficit and ambitious infrastructure plans. In 2025 we hope to hear from the government their plans for the mine. President Mulino will have to walk a fine line between market friendly policy and respecting the will of the people who demanded closure of the mine in years past.
  • Additionally, Panama is being sued for USD20bn by First Quantum, a Canadian mining company that was the operator of the mine, and there is other litigation related to the closure of the mine as well but none of that is likely to be resolved soon. 
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From early October 2024, 10 year Panama bonds widened about 90 basis points leading up to Moody’s move to outlook negative on the Baa3 rating earlier this month, likely triggering some forced selling by those who can’t hold high yield rated bonds. Economic growth has been better than expected according to Fitch, but fiscal concerns remain. At these spreads HY ratings seem to be priced in.

  • The closing of a copper mine in Panama for environmental reasons blew a hole in the government budget to the tune of 5% of GDP. That also left a much stronger reliance on the Panama Canal to support government expenditures, including a Social Security system deficit and ambitious infrastructure plans. In 2025 we hope to hear from the government their plans for the mine. President Mulino will have to walk a fine line between market friendly policy and respecting the will of the people who demanded closure of the mine in years past.
  • Additionally, Panama is being sued for USD20bn by First Quantum, a Canadian mining company that was the operator of the mine, and there is other litigation related to the closure of the mine as well but none of that is likely to be resolved soon.