Update Country Report Curaçao 11 Feb 2019

Event

On January 21st Curaçao's central bank issued new domestic bonds, with uptake totalling Naf69m (US$38.6m). The funds raised by this new bond issue will help to finance the island's budget over the medium term; low revenue is set to dampen economic activity in 2019.

Analysis

The new 30-year bond was fully subscribed, with demand setting a yield of 0.92%, according to the Centrale Bank van Curaçao en Sint Maarten (the central bank). This is a better yield than the last time Curaçao tapped the markets, with a 30-year bond issued in November 2017 receiving a yield of 1.24%.

Curaçao's economic situation has slightly improved since late 2017, when the economy was slowing sharply as a result of falling tourism arrivals from Venezuela and declining production from the Isla oil refinery. Curaçao's economy contracted by 1.75% in 2017 and is estimated to have contracted by a further 2% in 2018.

However, the economy is forecast to return to growth in 2019, albeit below 1%, and investors may believe that the worst of the economic downturn has now passed, with risks now moving towards the upside. The restart of production at Isla in January, alongside the advanced stage of negotiations to agree a new operating partnership for the refinery, should also bolster revenue prospects for the government.

But more than anything, the low yield on the latest issuance reflects the fact that Curaçao can rely on support from the Netherlands. Although Curaçao has not received a bailout from the Netherlands, unlike hurricane-hit Sint Maarten, the Netherlands is one of the leading holders of Curaçao's debt. In the most recent debt issue, bidding was opened for the Dutch State Treasury Agency (DSTA) 24 hours earlier than for other bidders, reflecting the expectation that the DSTA would finance much of this debt issue, although no final figures were released on the composition of the bond's uptake.

Impact on the forecast

The revenue raised by the bond issue will bring some relief for state finances and help Curaçao's government to hit its target of returning to growth in 2019.