NEW YORK, Aug 17 (IFR) - LatAm bankers are gearing up for what could be one of the slowest Septembers in recent years, but still hope there will be a brief surge of issuance before any US rates hike next month.
It has been a dismal year for primary issuance in Latin America, with cross-border bond supply hitting just US$55.4bn so far this year, according to Thomson Reuters data.
That is well less than half of the US$139bn seen in all of 2014 - which was a record year for the region - and even off the 2013 pace of US$121bn.
“Our pipeline is thinner than it has been running over the past three years,” said one banker.
In the context of the last 10 years, however, the US$55.4bn number looks comparatively healthy.
From 2005 to 2007, before the global financial crisis hit, annual LatAm issuance averaged just around US$45bn.
Still, sluggish growth in Latin America following this year’s commodities rout has taken its toll on issuance, diminishing funding needs for the region overall.
In Brazil’s case, this has been exacerbated by rising political risks from the corruption scandal at state-owned Petrobras, which has added an extra layer of complexity for borrowers already put off by higher funding costs.
Many corporates are also giving dollar bonds a wide berth as weakening local currencies are leaving them exposed to FX risks while the dollar goes from strength to strength.
Bankers expect sovereigns will take a front seat as they pre-fund ahead of the FOMC meeting that ends on September 17 - and could mark the long-expected Fed liftoff in rates.
Corporates could also try their hand at liability management trades to retire bonds on the cheap following the recent weakness in secondary prices.
Large state-owned commodity names like Chilean copper giant Codelco and oil company Pemex are also thought to be possible candidates. Such credits, however, will have to adapt to higher new issue concessions in a market still uncertain about the commodity space.
With the region’s primary markets all but dead, bankers are eyeing the US high-grade market as a leading indicator for the types of concession LatAm corporates might have to pay.
“If high-grade corporates are paying 15bp, that is the minimum (commodity credits) like Pemex and Codelco will have to pay,” said another banker.
“Non-commodity names could get back into the 10bp or below range. That is the space where people are looking to add, as they can’t do it in the secondary.” (Reporting by Paul Kilby; Editing by Marc Carnegie)