Primary bond sales from Latin American issuers could pick up in September if market conditions remain temperate or improve, analysts say.
“Companies and countries haven’t been issuing as they wanted in the last quarter, and they need to roll out debt, that is for sure,” said Laszlo Lueska, a partner and portfolio manager at São Paulo-based investment firm Octante Capital.
“If the interest rate in the US Treasury curve stays more or less like this, or even if it tightens, we are going to see a good window for issuers in the primary market,” Lueska added.
Brazilian development bank BNDES is poised for a deal in September, as are two compatriots: meatpacker Minerva and power company Cemig. Brazil is expected to come to market with a sustainable bond, while Chile, Paraguay and Uruguay are preparing deals, according to Lueska.
These and other issuers could sell global notes in local currency in the international markets as an option “if the mood of the market in general for risk assets gets better or even if the [US] Treasury tightens or the S&P index goes up,” he said. “I see this as a very viable option for financing.”
TIGHT CONDITIONS
It’s still early to gauge the volume of deals in September. Indeed, Moody’s Investors Service warned in a report last week that tight financial conditions “will continue to dampen” growth for the global economy during the remainder of the year, adding that it will remain “below trend” in 2024.
“Recession risk in the United States has receded, but below-trend output is necessary for inflation to sustainably decline to the Federal Reserve’s target,” Moody’s said.
The ratings agency said that while US inflation is coming down as expected and that the trend will continue in 2024, there still risks from “commodity price spikes” and as long as “resilient demand persists.”
Moody’s added, “We are confident in our view that inflation will continue to moderate across advanced and emerging market economies where reasonably sound macroeconomic management, together with central bank policy credibility, has kept inflation expectations in check.”
BRAZILIAN CORPORATES
According to Lueska, Brazilian corporates are focusing on the local bond market to meet their financing needs.
“What we are seeing is that for Brazilian companies, specifically, it has been a cheap year to issue in the local markets because credit spreads are tighter than the offshore markets for the same issuer,” Lueska said.
“They issue in the local market and repay the debt in the offshore market because it’s cheaper,” he added.
A SLOW RETURN
Latin American corporates slowly returned to the international capital markets in the first half of the year as they aimed to “refinance short-term maturities and fund investments,” Fitch Ratings said in a report.
However, the number of bond sales was still low compared with the previous two years, as deals fell to $6.9 billion in the first half from $11.1 billion in the year-earlier period and $36.8 billion in the first half of 2021, Fitch added.
“Political uncertainty remains a relevant issue in the region, with major proposals in Chile and Colombia being delayed and facing backlash, bigger threats of government intervention in energy sectors in Mexico and Colombia,” Fitch said.
“The combination of a weak business environment, high interest rates and low investor appetite for high-yield bonds” may discourage potential new issues coming to the market in the second half, Fitch added.