LatAm slowdown prompts deeper look down the pipe

LatAm slowdown prompts deeper look down the pipe

Bonds Capital Markets Corporate & Sovereign Strategy

The slowdown in new bond issues from LatAm over the last two weeks has prompted market makers to peer further down the pipeline and gauge where the next wave of activity will come from.

Investors safest bet remain with Brazilian and Mexican credits given both countries are gearing for presidential elections.

And despite Brazil being downgraded last month to BB-, sources have said any issuers, particularly those not impacted by the rating hit, will get ahead of any election jitters.

"Brazilian issuers will come through the end of June before the election," one bond buyer told LatinFinance, adding that all LatAm needed was "just one issuer" to take that leap of faith and prompt others to follow suit.

A number of the country's corporates were also downgraded this week following the action on the sovereign, but some of Brazil's largest corporates and the country's banks are being touted as new debt issuers.

One DCM banker covering Brazil said rates were still attractive, especially for those issuers with refinancing requirements and heavy investment needs.

Mining giant Vale, for example, is eyeing a liability management exercise to buy back or exchange its 2021 and 2022 bonds, sources have said.

On the FIG side, Itau Unibanco is in talks for another Basel III-compliant Tier One perpetual bond. In December, the bank allocated roughly 60bp of its Tier One capital when it printed $1.25bn in 6.125% 2023 perps.

"Brazil's economy is on an upward trajectory, I think investors will take that into account," a second DCM banker said.

The country recorded four consecutive quarters of growth in 2017, according to FactSet from the FT. GDP increased 1% last year.

Domino effect

After the mandatory staleness period last month, corporates are now equipped with Q4 numbers. The manic start to the year came from issuers not wanting to pass up the chance to pen debt sales at record low rates.

This week's heavy issue levels from the US high grade market, should have a domino effect on LatAm.

While not the dirt-cheap price of last year, DCM bankers generally, feel debt is well-priced under the current climate.

"I think it will happen especially if things do well in US markets," a third DCM banker said of new issue announcements or investor meetings this week.

A second sell-side source said Monday was one of the busiest days in the US high-grade market, with 13 transactions crossing the tape. On Tuesday, another seven deals priced in the high grade market, according to media reports.