Banco de Chile is looking to pay TIIE+50bp on an up to MXP1.5bn ($111m) 3-year bond, marking a debut for the issuer in the Mexican domestic market. Banco de Chile will be the third Chilean issuer to raise money there following similar moves by Banco de Credito e Inversiones (BCI) and miner Molymet. In July, BCI priced a MXP2bn 5-year floater at TIIE + 40bp, while Molymet in April issued MXP1.5bn 1.5-year bonds at TIIE+55bp. Pricing is scheduled for December 6. Banamex and JPMorgan are leading the transaction, rated AAA on a local sale.
Yearly Archives: 2011
Posted inDaily Brief
Can Lower Rates Rouse Brazil’s Credit Market?
Brazil’s local debenture market should see an increase in volumes and a well-needed dose of issuer diversification if the country’s interest rates reach single digits and stay there, say bankers and investors. Lower rates could break pension funds’ addiction to government paper as they would have to seek yields in corporate debt, spurring an expertise in credit analysis among investors. At least that is the hope. “Pensions will have to look for alternatives in credit to achieve spread,” says Alan Haddid, CEO of BRZ Investimentos “Slowly companies will start looking at the bond market. We believe it will be a big wave of investment in the coming years. You will have to have an expertise in credit.” This in turn would help to stretch tenors, increase offering sizes and improve liquidity, and indeed the market has already been slowly moving in this direction as the central bank loosens monetary policy in the face of slower global growth. “The number of issuers we have seen in the market – the levels, the tenors – have been going in the right direction,” says Juan Pablo de Mollein, an analyst at S&P. However, the deepening of the corporate debt market will take time given regulatory restrictions. “The main bottleneck is the limitation that the local pension funds still have to buy certain securities,” says Antonio Oliveira , head of Brazilian DCM at HSBC. For example, they can’t invest in debentures from non-public companies, which have been able to issue debentures since 2009 under rule 476. While 476 placements have brought more issuers to the market, demand from pension funds would act as a further incentive for corporate borrowers, he says. Still liquidity remains a stumbling block, especially for foreign investors seeking to participate in this market at time of broader market volatility. While secondary buyers exist, pension funds and other local investors have a buy-and-hold mentality, dampening any incentives to trade. “They might change their behavior when they
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EM Debt Funds Struggle
A total of $725m flowed out of EM bond funds in the week ended November 30, according to EPFR. However the class saw a 1.73% gain for the week ending December 1 for a 1.82% jump ytd, according to Lipper. Global income funds eked out 0.30% over the period and are up 0.50% ytd. International income funds were up 0.89% for the week and have gained 2.75% ytd.
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Gerdau Gets Triple B
Moody’s has assigned a Baa3 rating to Brazilian steel company Gerdau, and withdrawn its corporate family rating of Ba1. The agency cites the company’s improved financial conditions following its BRL3.6bn equity issuance in April. As of September 30, the company’s total cash was BRL4.3bn versus net adjusted debt to the last 12 months adjusted Ebitda of 2.9 times, which the agency believes is sustainable despite a large investment program and margin pressures. “From a strategic perspective, the ongoing investments for greater self-sufficiency of key inputs (namely iron ore) should improve margins and the overall competitiveness of Gerdau over the near to medium term, Moody’s says. Potential monetization of iron ore assets may also bring some liquidity, it adds.
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Infonavit Preps MXP RMBS
Mexican mortgage and social services entity Infonavit plans to sell an up to MXP1.1bn ($82m) UDI-denominated RMBS in the domestic market this week. The 28-year security will be backed by Infonavit mortgages targeted at middle and high income borrowers. Pricing is scheduled for December 7. While official guidance has yet to be released, the issuer is heard considering an interest rate in the 4.5%-5% range. “This is a preliminary forecast as pricing is dependent on how the market is at the moment,” notes a person familiar with the transaction. Proceeds will be used to create new mortgages. Banamex is managing the sale, rated AAA on a local scale.
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LatAm Equity Sees Inflows
LatAm equity funds booked inflows of $19m in the week ended November 30, according to EPFR. Meanwhile, EM equity funds lost $1.51bn. In terms of performance, EM equity actually performed well during the week ending December 1, climbing some 7.84% over the period, though they are still down 16.36% on the year, according to Lipper. Similarly, LatAm funds were up 8.18% on the week, but down 18.86% ytd. Global small and mid-cap funds were up 7.29%, but down 11.11% ytd.
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Mexico Holds Rates
Mexico’s central bank has left the benchmark interest rate unchanged at 4.5%. The bank based its decision on positive signs regarding domestic productivity and inflation, along with a continuing deterioration in the global economy, it says. “With respect to growth, Banxico discounts the fact that domestic aggregate demand has been improving recently,” say analysts at Nomura Securities. “In fact, it describes the balance of risks for growth as worse than before. Clearly, Banxico seems to be focusing on the downward revisions to Europe’s growth outlook, which is headed for a recession, and on the lower forecasts for the US economy by the Fed.”
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PDVSA Turns to Chinese Credit to Guarantee Brazil JV
Venezuela’s PDVSA has announced that a $1.5bn credit line will serve as a guarantee for its 30% participation in a joint refinery with Petrobras. This came just a day after the Brazilian oil company agreed to give PDVSA more time to finalize the transaction. Cash and a credit line by the China Development Bank will insure the project’s advance, says PDVSA. A spokesman for the company declined to offer more details. On Thursday, Petrobras announced it had given PDVSA 60 more days to settle its affairs on needed loan guarantees with Brazil’s BNDES to finalize its participation in the $13.36bn project for the Abreu e Lima refinery. The PDVSA statement quotes the company’s president, Rafael Ramirez, saying that it has made the needed money available and “all that is left is for BNDES to do the logistical work” necessary to move forward. Under the terms of the Pernambuco-based refinery, first signed in March 2008, PDVSA would take a 40% stake in the plant and become a main heavy crude supplier for the refinery. The total investment in the plant was originally expected to reach $4bn but now it is estimated at $13.36bn.
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Southwater Raises Domestic Funding
Inversiones Southwater, an Ontario Teachers’ Pension Plan-controlled holdco for 4 Chilean water assets, has sold UF5.6m ($241.5m) in 25-year bonds, priced with a 4.5% coupon to yield 4.3%. Banchile was the sole lead. The bond is non-callable and amortizes starting in year 23.
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VW Bank Prices MXP Debut
Mexico’s Volkswagen Bank has raised MXP 1bn ($71m) in a domestic bond debut, pricing a 3-year floater at TIIE + 50bp. Private banking accounts and mutual funds mostly participated, allowing the issuer to see 1.4 x demand. VW’s pricing is being compared to Daimler, which in September, priced a MXP1bn 3-year bond at TIIE+50bp. The car manufacturer then saw demand reach 1.4x and also priced against talk of TIIE + 40-50bp. “Despite volatility in the market, pricing shows there is liquidity in Mexico,” says in banker familiar. VW has a MXP7bn program, and is expected to become a frequent issuer going forward. The bonds, rated AAA on a national scale, will be guaranteed by parent Volkswagen Financial Services. HSBC and Santander managed the transaction.