NEW YORK, Jan 12 (IFR) - Chile (Aa3/AA-/AA+) was poised to become the first Latin American issuer to sell cross-border bonds in 2016 on Tuesday, breaking the lull in what has been a quiet start to the year for the region’s primary market.
The South American nation, which was selling both euro and dollar bonds on Tuesday, is the highest rated sovereign in Latin America and hence seen as an ideal candidate to open the way for other regional borrowers which have been sidelined by global volatility.
Chile launched a EUR1.2bn 10-year at mid-swaps plus 110bp, the tight end of guidance of plus 115bp (+/-5bp) and a good 10bp inside initial price thoughts of 120bp area.
At the same time, the sovereign is testing buyside appetite with initial thoughts of US Treasuries plus 140bp on a new 10-year dollar bond, that is being done in combination with a tender for outstanding debt.
At 110bp over, the euro issue is seen coming with a 23bp-30bp concession to the curve after accounting for the extension from the existing 2025s, which were trading with a spread of between 75bp-82bp, said bankers away from the deal.
Bankers close to the deal were putting the new issue concession on the euro trade nearer 15bp after watching books reach close to EUR2.5bn earlier Tuesday.
At 140bp over US Treasuries, the dollar deal is also starting with a 35bp-40bp premium to the secondary curve, where the existing 2025s are being spotted with a G spread of anywhere between 100bp-105bp, according to the banker away from the deal. By late morning, books were heard breaching the US$1.8bn mark.
“They are starting conservatively for a single A issuer, but it reflects the reality of the market,” said the banker away from the deal.
The conservative approach to pricing taken by leads Bank of America Merrill Lynch, Citigroup, HSBC and Santander is seen as warranted in what remains an unsteady backdrop for emerging markets issuers.
A less than stellar reception for Poland’s 10 and 20-year bond sale on Monday only underscored the difficulties EM borrowers face even those higher up the credit spectrum.
Poland is similarly rated to Chile with ratings of A2/A-/A- by Moody‘s, S&P and Fitch. It paid a tighter 65bp over mid-swaps on a 10-year, but leads failed to budge pricing from initial price thoughts.
“People took a lesson from Poland and are a bit cautious on (the Chile) trade,” the banker said.
It is also assumed that a high quality sovereign like Chile, which also competes for demand from US investment-grade buyers, may wish to print before AB InBev’s jumbo M&A driven trade, which could come to market as soon as tomorrow.
“If you are Chile you are more likely to compete with big US high grade issuers,” said a second banker. “You don’t want to come at the same time as InBev.”
It is hoped that Chile will encourage other Latin American borrowers to move forward now, helping them better understand new clearing levels.
“People are trying to get their minds around new issue premiums and the first issuers to hit the market took the hit,” said the first banker. “Hopefully things will open up. The market backdrop remains challenging, but I am constructive.”
Other possible candidates for January include Mexico and Colombia, as well as their respective oil companies Pemex and Ecopetrol. But bankers are hardly expecting a flood of issuance, with most taking a guarded view of primary volumes this year.
In the dollar trade, Chile is also tendering for the 3.875% 2020s, the 3.25% 2021s, the 2.25% 2022s and the 3.125% 2025s at US$1,005.38. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)