Latin America year-to-date debt volumes have been modest amid broader volatility and expectations of a possible hike in US rates, with only the highest-rated Latin American borrowers accessing the cross-border markets.
Predicting volume is difficult, bankers say, but they expect more Latin American sovereigns and corporates to turn to the European bond markets for capital fundraising.
Latin America year-to-date dollar-denominated volumes stand at a modest $8.8 billion from four borrowers, according to Dealogic, including Pemex’s $5 billion multi-tranche trade that printed at generous concessions to the Mexican sovereign and its own curve.
Euro-denominated debt issuance, meanwhile, is catching on, with four Latin American borrowers issuing $5.45 billion dollar equivalent in the euro market through March 2. Issuers include sovereigns Chile, Mexico and Peru.
“Rates are lower in Europe,” says a Latin America syndicate banker.
“Some issuers might have natural European cash flow needs and euros represent a diversification play in a time of volatility when it is good to tap different markets and not rely on the dollar markets.”
Colombia is expected to become the next sovereign to access the European market. BBVA, Goldman Sachs and JPMorgan have been taking the Baa2/BBB/BBB rated borrower on fixed income investor meetings in Europe in early March. Colombia’s last issue in euros was more than 14 years ago.
Corporate borrowers are also looking at funding opportunities in euros. Mexico’s Femsa is on track to become the first Latin America corporate borrower to tap the European market this year. The company scheduled meetings with fixed-income investors in Europe in March, ahead of a possible offering. BBVA, Credit Suisse and Deutsche Bank have been hired to take Femsa to Europe to meet the fixed-income accounts. Aside from attractive rates in the euro market, Femsa has euro exposure through its ownership of the second largest equity stake in Dutch brewer Heineken.
Looking ahead, a euro-denominated bond could be an option for Baa2/BBB/BBB rated Uruguay, which has said it intends to issue $1.5 billion in the international markets this year. Elsewhere, Panama closed an RFP in mid-January and could go to the cross-border bond markets before the end of March.
Among the higher yield sovereigns, Argentina could be a key contributor to Latin America bond volumes and issue up to $15 billion in new bonds to pay holdout creditors. A deal could come to market as soon as April, if Argentina’s legislature endorses the agreement and repeals laws that prohibit the government from making payments to holdout creditors.
On the corporate side, volatile conditions have effectively shut out many corporates from both debt and equity new issue markets. Companies are assessing other ways to address existing debt levels, however, and distressed companies are looking at deleveraging tactics.
At least five Latin American corporates have initiated bond buybacks this year, with two more —Santander Chile and Hypermarcas —adding their names to the list. Liability management trades remain open to corporate issuers, and more deals are expected to come to market in the next few months.
Latin American sovereigns have also been active in liability management. Chile in January used the dollar proceeds from cross-border bonds to fund a cash tender offer to buy back some of its 2020, 2021, 2022 and 2025 notes. Investors holding $3.295 billion in the four series were given the option to switch into a new 10-year dollar bond or take cash. LF