NEW YORK, July 28 (IFR) - S&P’s decision to put Brazil’s BBB- rating on negative outlook cast a shadow over what had been a positive Tuesday in the LatAm credit markets.
Brazilian bond prices dipped after S&P raised the possibility of demoting the country’s credit standing to junk, though overall the response was relatively muted.
Brazil 2025s were down about 30 cents in early afternoon to trade at around 93.00, while the country’s five-year CDS was back at around 300bp-302bp after opening around 291bp.
“It was a mild reaction,” said Siobhan Morden, head of Latin America strategy at Jefferies.
“But (S&P’s move) was earlier than expected, and it increases the risk of a downgrade coming sooner.”
This follows a dramatic dip in prices last week, when the government announced it could not meet primary surplus targets for the year.
That in turn raised concerns that Moody’s would downgrade the sovereign to Baa3 from Baa2 with a negative outlook to perch it just above junk.
“It wouldn’t be a surprise if Moody’s came with a downgrade and a negative outlook (as well) as it would be in line with S&P,” said Klaus Spielkamp, head of fixed-income sales at Bulltick.
S&P cited the difficulty of implementing needed policy changes at a time when the Petrobras corruption scandal and a floundering economy has made governing more difficult for President Dilma Rousseff, whose popularity has sunk in the polls.
“This generates the prospect of somewhat less consistent support in Congress to approve needed fiscal adjustment measures, even somewhat diluted, compared with what we had already seen and expected earlier this year,” S&P said.
The rating agency puts a one in three chance that the tough political environment will result in “further slippage” of fiscal numbers and a longer period before the economy recovers.
“It is hard to see Brazil recovering when there is a overhang of ratings downgrades,” said Morden.
Elsewhere, commodity names had been recovering as investors looked for bargains in a sector that has suffered considerable widening of late.
Earlier in the day, Chilean copper producer Codelco and miner Southern Copper saw some spread tightening, with their 2044s and 2042s quoted at 245bp and 370bp, respectively.
Brazilian state-owned utility Eletrobras, under some price pressure after two executives were arrested in a corruption probe, saw its 2021s down about 1/4 point at 89.25.
Telesites, the cellular tower spin-off of Mexican telco America Movil, could announce an up to Ps15bn (US$921m) multi-tranche offering as soon as Wednesday, according to a source.
The peso deal may also be quickly followed by a dollar deal, which could be around US$400m with tenors of anywhere between seven and 10 years, the source said.
The company, expected to be rated BBB-/BBB-, wrapped up international roadshows on July 10 through Citigroup, Inbursa, BBVA and Santander, but opted to wait on any bond sale.
Telesites is looking to issue a peso-denominated five-year floater, 10-year Euroclearable fixed-rate issue and a 15-year tranche denominated in inflation-linked units called UDIs.
Price discussions on the 10-year Euroclearable deal are revolving around Mbonos plus 190bp.
Sagicor Financial Corporation, an insurance and financial services provider with operations in the Caribbean and the US, hired JP Morgan and Scotiabank to arrange fixed-income meetings in the US and Europe ahead of a potential USD-denominated 144A/Reg S bond issue.
The meetings took place in Boston today and will continue in Los Angeles on July 29 and New York on July 30. Expected corporate ratings are BB-/B from S&P/Fitch.
Whispers of mid 6% are being heard on a US$750m 7NC3 from Sable International Finance Limited (Cable & Wireless) as it kicks off roadshows via BNP Paribas, JP Morgan, RBC and Scotiabank. Expected ratings are Ba3/B.
Brazilian conglomerate Cosan Overseas has wrapped up roadshows week after marketing a possible 144A/Reg S bond offering.
Bank of America Merrill Lynch, Bradesco, Itau BBA, Morgan Stanley and Santander organized the meetings. Expected ratings are Ba2/BB/BB+ by Moody‘s, S&P and Fitch. (Reporting by Paul Kilby; Editing by Marc Carnegie)