5 de marzo de 2015 / 18:23 / en 3 años

Brazil woes cast shadow on LatAm corp bond issuance

NEW YORK, March 5 (IFR) - With the corruption scandal surrounding Petrobras effectively shutting Brazilian corporates out of the bond markets, bankers say it will be a while before LatAm issuance regains momentum.

Across the region, the primary markets are bracing for a relatively slow year ahead, even though many of the technicals are constructive and the tone is generally positive.

“With Brazilian issuers out of the market, that has taken out about a third of the supply we have seen over the last couple of years,” one banker told IFR. “That is a lot.”

To be sure, Mexican and Andean corporate issuers may fill some of the gap left by the dearth of Brazilian trades.

Cheap money is still up for grabs in the dollar market and investors are on the hunt for corporate assets after being starved of supply this year.

Against that backdrop, more borrowers are likely to be goaded into issuing before the Fed moves to hike short-term rates.

“Arguments are positive for those corporates looking to come to market before the rate cycle starts ticking up,” said a syndicate official.

So far in 2015, however, corporates have accounted for just about US$3.7bn of the roughly US$22bn raised in Latin America this year, with sovereigns and quasi-sovereigns dominating supply.

There has been only US$230m raised thus far in March from a single deal - well off the pace of the US$15bn in deals priced in LatAm markets in March 2014.

The dearth of LatAm supply stands in sharp contrast to the surge of activity north of the border, where the US high-grade primary market has been on an absolute tear.

And it is also out of kilter as regards demand, as investor cash keeps trying to find deals out of the region.

For the week ended February 25, EM debt funds saw a net inflow of US$1.14bn, according to data from EPFR - the largest one-week inflow since early in 2014.


Aside from troubles in Brazil, there has been no shortage of reasons for the relatively lackluster issuance levels across the region.

The stumble in crude prices has clouded the prospects for borrowers from the oil sector, while weakening FX markets have given CFOs pause about taking on dollar debt.

And refi requirements are low, given that many credits have already undertaken liability management deals - thanks to Fed-induced liquidity - leaving them with no urgent funding needs.

Still, a strong reception last week for new deals from Mexico’s Cemex and Caribbean telco Digicel has bankers hopeful that companies will seize the moment before any US rates rise.

“Corporate issuers are coming out of blackouts,” one syndicate official told IFR. “People are pointing to Cemex and Digicel as examples that markets are open to put cash to work.”


Nevertheless, bankers say, LatAm corporates will have to pay to get deals done in the US dollar market.

Investors are demanding more of a liquidity premium following the recent blasts of volatility.

And some in the market put much of the blame on the Petrobras debacle.

“Petrobras is proof that liquidity in our market is terrible. Everyone assumed it was liquid, but no one could trade it,” the syndicate manager said. “New issue liquidity premiums have expanded.”

In Europe, meanwhile, a hefty dose of quantitative easing is making the euro market appealing.

Jitters about Ukraine and Greece have settled down somewhat, and for those credits with the profile to tap that market, conditions are attractive.

The European Central Bank’s plans for aggressive monetary loosening is pushing yields lower, and after both Cemex and the Mexican sovereign had success there, bankers say others should follow.

“We are pitching a lot of euros,” said one senior DCM banker focused on market.

Indeed, bankers are telling Latin American high-grade borrowers that markets are open to them in both euros and dollars - and at attractive pricing.

“They might pay an elevated new issue premium but coupons are fine,” said the syndicate official. “Plenty suggests we should see more (corporate issuance).” (Reporting by Paul Kilby; Editing by Shankar Ramakrishnan and Marc Carnegie)

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