Amid an environment of low global interest rates and uncertainty over future US Federal Reserve decisions, Latin American bond issuers are expected to turn out in force in September to take advantage of an investor bid for emerging market debt.
The issuance may not reach the heights of June and July. But Mexico’s pipeline is expected to pick up. Media company Televisa is likely to return to the bond market, while the real estate fibras, which have been uncharacteristically quiet this year, could announce bond road shows in September. They are expected to be joined by a handful of debut issuers, who typically appear in the fourth quarter.
Bankers also expect sovereigns to reopen existing bonds or carry out new issues in September and October. Colombia, which finalized a peace agreement with FARC rebels in August, could fund 2017 requirements through local or cross-border notes. El Salvador is also said to be close to a potential benchmark trade. Peru may issue a modest amount of debt in the cross-border markets to take advantage of strong conditions, although it has no plans to issue a jumbo bond, President Pedro Pablo Kuczynski told LatinFinance in August.
Sovereign spreads have come in significantly since June, and sources do not see this changing through September. El Salvador’s 2027s were seen at yields of 6.3% in late August, tightening from yields above 9% earlier in the year. Peru and Chile’s bonds have also come in more than 50 basis points since June.
August was a quiet month, although some issuers capitalized on investor appetite to conclude trades. Caa2/B/B rated Jamaica bought back bonds maturing in 2017 and 2019 and added $364 million in new 2039 notes. Argentina’s Chaco province highlighted investor appetite for yield. The province, considered one of the country’s poorest, debuted in the international bond market with a $250 million sale of 9.373% 2024 notes.
After Chaco’s issue, investor interest in Argentine bonds could subside. Since the sovereign returned to the international capital markets in April with the largest emerging market trade ever, a number of Argentine provinces have followed suit. Investors may now be reaching their limits on exposure to the country.
Venezuela’s state-owned oil company PDVSA is heard to be shopping its 2017 bonds in exchange for longer-dated notes. The company has more than $2 billion in amortizing debt due next year. PDVSA’s 2017s were offering some 70 cents to the dollar in late August, while the 2024s only offered about half of that, making a bond exchange incredibly expensive, a fixed income investor said. “To get investors to buy longer-dated paper, they essentially have to offer two of its 24s to pay off the 17s,” the investor said.
Both PDVSA and Venezuela have some $5 billion in debt maturing between this year and 2018.
“One way or another, Venezuela and PDVSA have found a way to pay off their debts,” he said. “They’ve been creative when it comes to agreements, whether it’s through Petrocaribe or deals with China.”
Last year, Jamaica and the Dominican Republic repaid large portions of their outstanding debt to PDVSA. “They got that done nicely last year,” the investor said. “But this year, I’m not so sure there is anyone left to tap for Petrocaribe cash.” LF