LatAm DCM tackles tough pricing dyamic
September 13, 2018 |
Suzano's reluctance to tap the market highlights a tug-of-war between issuers and banks' syndicate desks
Latin America's cross-border debt capital markets' desks are tackling a difficult new pricing dynamic that is culminating in a tug-of-war of sorts between syndicate desks and issuers.
Since the Dominican Republic and Brazilian power company Cemig printed bonds in mid-July, there have been no new dollar-denominated international securities sales.
Last week, and for a small window this week, bankers hoped for a new issuance from Brazilian Suzano Papel e Celulose, but the pulp and paper exporter was reluctant to pay the new issue concession drummed up under current market conditions.
"Right now, there is little confidence [syndicate desks] can tighten pricing," one LatAm-focused origination banker in New York said. "The marketplace does not know where concessions are right now."
In the case of Suzano, sources previously told LatinFinance, that the company was after 20bp or 25bp less than what was being touted. Suzano's 2026s were spotted at around 294bp over US Treasuries at the time.
From the issuers perspective, they understand that by tapping the marketplace right now would prove costly when compared to the tight pricing available in January or late last year.
"Those days are done," a LatAm DCM head also based in New York said. "To get a deal done now, there is no question that issuers will have to pay up."
Investors, meanwhile, are leveraging headline risks, such as a negative trade rhetoric between the US and China or emerging market risk stemming from currency woes in Turkey and Argentina, as reason for demanding a greater new issue concession.
"Headlines are being used to get a wider yield," the first DCM banker said. "And issuers will not be rushed to market."
Caught in the middle are syndicate desks trying to find a happy medium that can bring both the buy- and sell-side together, sources have said.
Credits are ready and waiting to pull the trigger on new issuances while investors have money to put to work.
"Syndicates talking to investors need to advise where the price is set," the banker added. "But they need to maintain a balance [between the buy- and sell-side] to keep momentum coming for other deals."
Bankers that spoke to LatinFinance on Wednesday agreed that Wall Street was cautious over new issues right now, with one saying they could not "afford to do a bad deal" because of the fear that unfavorable terms would spread to future transactions.
"Concessions have tightened in the US and in LatAm, concessions are still theoretically high, but that is because no one has tested the waters," the first banker added.