Novel tier 2 finishes off DCM year
Santander Mexico has sold the region’s first Basel III-compliant Tier 2 bond. It should be the last cross-border deal in another record year.
Santander Mexico raised $1.3 billion from
the sale of of LatAm's first Basel III-compliant Tier 2 bond
Wednesday. Investors put in for $3 billion in orders for the
non-convertible 2023 NC5 subordinated note that carries risk of
coupon deferral or principal write-down. Parent Santander
bought 75% of the sale, as was the bank's plan.
The deal was likely the last cross border
sale this year from LatAm this year. Issuers have raised
$122.91 billion from 206 cross-border transactions, according
to Dealogic, the latest in a string of record years. The
full-year total for 2012 was $116.84 billion from 187 deals.
Global DCM volume was set to reach $6 trillion.
Petrobras' $11 billion deal in March was
the world's third-largest in 2013, behind Verizon and Apple.
Citi was set to be the leading LatAm DCM bookrunner by volume
in 2013, with $14.95 billion from 65 transactions.
DCM volume in 2014 is looking less
certain, with little expectation of another record year. Growth
in the US economy and the end of monetary stimulus has led to
the expectation of higher borrowing costs. Though officials
surprised the markets somewhat Wednesday with the announcement
of the first tapering, the reduction is expected to be a
"We sense that the Fed fully understands
that policy making is currently moving through unchartered
waters, and such fact obliges the Fed to be very cautious in
its approach to policymaking," said Bulltick Capital Markets,
which had not expected tapering until March. "Gradualism is
good for markets, such being one of the main reasons why we
think that 2014 will be a good year for risky assets."
Noting officials' "very dovish forward
guidance," Bulltick expects the pace of tapering to not be in a
pre-set course, it will remain fully data-dependent. It expects
"liquidity will remain very ample for a very long time, meaning
that investors will have no choice other than to continue to
carry trade and look for opportunities in risky assets." For
LatAm assets, this means that the world's monetary environment
will remain consistent with asset prices recuperating some of
the losses incurred during 2013, it said. It forecasts the
10-year US Treasury bond to trade at 2.9% by year-end 2014 and
at 3.3% by year-end 2015. The bond was at 2.92% Thursday.
Despite the QE tapering having
"mixed-to-negative credit implications," Moody's finds that
stabilizing economic and financial conditions around the world
will support the credit quality of global debt during 2014.
"The move toward normalization of monetary policy in the
US [will] have a relatively finite and temporary impact on most
developed and developing economies," the agency said. In Latin
America, it says Brazil, Chile, Colombia, Mexico and Peru "all
have solid buffers against the tighter funding conditions that
could result from QE tapering."LF