LatAm bond sales make a comeback in second quarter

LatAm bond sales make a comeback in second quarter

Bonds Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Funds Asset Management Coronavirus Latin America

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Cross-border bond sales from Latin America rebounded in the second quarter this year as issuers sought funding to hold off the effects of the economic crisis and investors looked for yield in a market with high liquidity and low interest rates.

"There's investor appetite, despite the coronavirus crisis, and issuers are needing liquidity for their country's activities," said an investor in Panama.

The year had opened on a high note. January marked a historic high with cross-border bond sales by Latin American issuers reaching $39 billion. But as the COVID-19 pandemic extended beyond China, bond sales fell to $2 billion in February and $3.9 billion in March, according to data provided by Dealogic. Starting in late March, however, there was a rebound, led by sovereign issuers.

Panama paved the way for others in late March when it sold $2.5 billion worth of sovereign bonds to shore up resources to fight the effects of the coronavirus.

"Panama was very proactive at the beginning of the crisis," said an investor in the New York area.

Other countries followed Panama's lead in quick succession. Peru issued $3 billion on April 16 and Guatemala issued $1.2 billion on April 21, while Mexico came with $6 billion on April 22 and Paraguay with $1 billion on April 23. After that, came state-owned companies like Colombian oil company Ecopetrol, which issued $2 billion on April 24, and Chilean copper miner Codelco, which placed $800 million on April 29.

In all, Latin American issuers sold $16 billion worth of cross-border bonds in April, up from the same month in 2019 and also the same month in 2017, a record-setting year for bond deals from Latin America, according to Dealogic.

Deal volume slipped to $8.5 billion in May this year, but it jumped back up to $16 billion in June, the highest level for the month for the past three years, according to numbers in LatinFinance's database.

The US Federal Reserve has done a lot to provide a backstop and allows investors to increase their appetite for risk. Issuers, on the other hand, are taking advantage of low interest rates to swap old notes for new debt at better terms and to raise funds to stave off the effects of the coronavirus pandemic, analysts said.

The recent jump in new issues, however, will not likely continue through the end of the year, they added.

"They will remain stable or maybe decrease slightly," said the investor in Panama.

Francisco Ghersi, managing director of Knossos Asset Management in Madrid, said volumes will likely decline for the rest of the year, but "the results of Argentina's debt negotiations will have an effect because, if the issue is resolved, the country will issue again."