NEW YORK, June 16 (IFR) - The primary market was very quiet and LatAm credits traded flat to slightly wider on Tuesday, but bankers still remain hopeful of some pickup in issuance after the FOMC meetings this week.
Trading volumes were light and spreads on key deals like Petrobras’s 2024s had inched a couple of basis points wider to trade at 437bp-432bp. Its Century bond was trading essentially flat to Monday’s close at 522bp-517bp.
Risk aversion is infecting most credits in the region, even those benefiting from positive news.
Higher crude prices and a Bank of America Merrill Lynch report saying that oil-rich Venezuela should receive a US$5bn loan disbursement from China in the next two quarters has failed to lift bonds issued by the beleaguered sovereign on Tuesday.
Earlier in the session, Venezuela 2027s were being quoted at 41.40-42.15 after trading 42.00-42.75 on Monday.
“Everything around Venezuela remains heavy,” said a second trader. “People need to see this disbursement first and no one is giving them the benefit of the doubt.”
China has become an important source of financing for the South American country, which according to BAML, will require US$20bn to cover funding needs this year.
A major reason for this forced lull in Latam markets is the news out of Greece. “Accounts are nervous, more so in Europe than in the US, but volumes are light and investors are hedging their portfolios,” said a New York based investor.
A Greek default - a scenario that many on the buyside see as likely - is expected to spillover into Latin American markets and send asset prices lower.
In the primary markets though, bankers don’t discount bond issuance on Thursday following FOMC meetings. If all goes well, bankers are anticipating more deals between now and mid July.
Thereafter, the August holiday season and stale financials are likely to dampen debt sales until September.
However, if consensus about Fed monetary tightening proves true and the Central Bank hikes rates in September, issuers may watch windows close rapidly should more volatility ensure.
“As we get into the summer, we might be in a world where things are more volatile,” said a senior banker. “Accounts, despite having more cash, might be more vocal about where things price, making trades more challenging.”
In short, there may be few issuance windows between now and then, and issuers should take advantage of them while they can, say bankers.
The Government of Aruba, rated BBB+ by S&P and BBB- by Fitch (both stable), has mandated Credit Suisse and Raiffeisen Schweiz to lead a roadshow in Switzerland this week.
The Caribbean island is a part of the Kingdom of the Netherlands. The deal is “supervised” by the Netherlands but does not have an explicit guarantee.
Jamaica started investor meetings today in Los Angeles through Citigroup. The country, rated Caa2/B/B-, will head to New York on June 18, Boston (19), London (22), Germany (23) and wind up in Amsterdam on June 24.
Meetings are being described as a non-deal roadshow, but markets have been expecting the sovereign to raise funding to retire a PetroCaribe loan owed to Venezuela.
Utility AES Panama, rated BB-/BB+, is on the road with Deutsche Bank and Banco General to market a possible 144A/Reg S senior unsecured bond.
The company visited accounts in New York and the West Coast today and will head to Boston on June 17.
Proceeds are expected to finance a tender for US$300m in outstanding 6.35% 2016s. AES Panama is the country’s largest electricity generation company. Panama (Baa2/BBB/BBB) owns 50.4% of the company, while AES Corporation (Ba3/BB-/BB-) holds a 49% stake.
Reporting By Paul Kilby; editing by Shankar Ramakrishnan