Novel tier 2 finishes off DCM year

Novel tier 2 finishes off DCM 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 gradual process.

“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