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NEW YORK, Aug 18 (IFR) - Latin American bankers are bracing for a post-Labor Day boost to dollar bond supply from companies retiring expensive debt or merely sprucing up their balance sheets, as they take advantage of robust appetite for the region's debt.
A sustained rally in Latin American debt has already spurred a flood of refinancings since June 23 when the UK's referendum vote to exit the European Union encouraged further monetary easing across the developed world.
Since June 29, the region's issuers have already tapped the international bond markets for close to US$21bn, pushing primary volumes to US$85.39bn year to date, just past the US$83.41bn seen for the entire 2015, according to IFR data.
"It has been a one-way train and Brexit only slammed the foot on the accelerator," a syndicate manager told IFR. "Money is flowing toward EM and LatAm in particular."
The uptick has come as a welcome surprise to bankers who just seven months ago had predicted another slow year for a region hit hard by a commodities rout and Brazil's economic crisis.
Optimism over a change of leadership in both Brazil and Argentina, combined with the recent grab for yield and a bounce in crude prices, has however forced a change in their outlook.
"The market is in the best shape it has been for a while, and nimble borrowers will mandate between now and September," a second syndicate banker told IFR.
"The idea is to strike when the iron is hot so it will be reasonably busy."
Dollar funding needs may not be large in a region where growth remains lackluster, but bankers expect a consistent flow of deals.
"We will see more opportunistic financing versus more immediate funding needs," said Sean Newman, a senior portfolio manager at Invesco.
This includes a hefty chunk of callable securities which were issued several years ago at higher yields and could be taken out at more attractive levels.
"A lot of bonds are callable in 2016 and 2017 so it makes sense to refinance when you can save 100bp on the coupon," said a syndicate banker.
Latin American companies have issued some US$12bn in securities with calls in 2016 and 2017, according to data provided by SDC, a Thomson Reuters company.
On top of that, there is about US$51bn of corporate dollar-denominated bonds coming due over the next four months of 2016 and in 2017.
And while some of that may belong to issuers that have already tapped the market or to defaulted borrowers, refinancing needs for the region remain substantial.
"A lot of the big borrowers have (already come to market), said Mark Hughes, a research analyst on the EM debt team at Western Asset Management.
"The question is given how favorable market conditions are, will borrowers be more opportunistic, take the money when they can, or prefund for 2017 needs."
Beleaguered Brazilian oil company Petrobras alone has already raised US$9.75bn this year in an effort to address a wall of upcoming maturities, while Mexico recently garnered US$2.76bn to redeem an equal amount of January 2017 bonds.
As part of that deal, Mexico tapped its 4.125% 2026s at 3.042% - its lowest yield on a 10-year dollar bond ever.
It is those low rates that are likely to tempt more Latin American sovereign and corporates to carry out liability management trades and refinancings come September.
The reference spread on JP Morgan's EMBI Global Diversified index hit a recent low of 331bp on Tuesday, narrowing 80bp since June 27 and 176bp since February 11 at the height of the commodities scare.
"There will be enough to keep us busy with liability management type activity," said a banker.
Supply, however, will still be insufficient to meet the US$59.07bn in cash flows created this year from amortization and coupon payments on LatAm corporate bonds, according to JP Morgan.
"Even though we have seen a lot of issuance, the net stock of bonds hasn't increased much because a lot of it went to fund tenders, buybacks and calls," said Darin Batchmen, a portfolio manager at Stone Harbor Investments.
The balance is better in the sovereign sector where cash flows from debt payments are expected to amount to US$24bn versus US$44.4bn in gross issuance, according to JP Morgan. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)