Category: Bonds

Despite selloffs in global equity markets and discouraging news from developed economies, neither bankers nor EM investors fear negative repercussions for LatAm DCM hopefuls waiting for the post-Labor Day window. “The news flow out of the US has not been supportive, and the European situation appears to be gaining momentum to the downside, and that does effect the psyche of investors,” says Luz Padilla, EM fixed-income portfolio manager at DoubleLine Capital. She notes a weakening in EM fixed income, with Mexico widening around 15bp in the week to Friday and Brazil flaring around 20bp. To some extent this represents repricing to more “normalized” levels following a great run up, says the investor. “Supply is still going to be heavy, it might be diminished a little bit, but doesn’t get abolished,” adds Padilla, who thinks $8bn-$10bn issuance in each of September and October is not out of the question. Issuers may have to pay a bit more, but in an environment of low treasury yields, 20bp-30bp extra is not a likely deterrent, she explains. High-yield credit is something investors want, though this depends on the price and the story. The most optimistic of DCM bankers expect $20bn-$25bn more cross-border issuance to come from LatAm by the end of the year, perhaps pushing the year-end total past last year’s $70bn. There was $53bn issued through August 27, according to Dealogic. “The US economic news is not that relevant,” says a DCM banker, pointing to strong fund inflows, and rates that are still attractive for LatAm issuers, even if spreads have widened. “Technicals still work in issuers’ favor,” Bevan Rosenbloom, EM corporate strategist at RBS, tells LatinFinance. He adds that only exceptionally poor news from the US would block market access. JPMorgan predicts $4bn-$6bn of EM fixed-income inflows per month through the end of the year, for a full year total of $70bn-$75bn. Roughly a third typically goes to LatAm.

Brazilian development bank Banco do Nordeste do Brasil (BNB) is planning to raise funds in the cross-border DCM, according to bankers in that market. A size of up to $600m is expected from the government-owned regional lender, which has not sold a bond internationally since 1997, according to Dealogic data. As the larger BNDES state development bank began to do in 2008, the BNB is looking to return to international sources of funding as its lending business expands. Deutsche Bank is heard among the shops with the mandate.

Codelco is heard considering a return to the bond markets, according to DCM bankers, having sent out an RFP. The state owned miner last raised funds internationally in January of 2009, with a $600m deal. Codelco faces around $15bn in investment needs over the next few years to maintain and increase copper production levels, Moody’s says in a recent report lowering the outlook its A1 rating to stable from positive. Codelco’s next maturity is $435m in November 2012, according to Credit Suisse. It has the option of domestic funds also, under a shelf filed last year. The Chile sovereign paved the way last month for Codelco, raising $1.52bn at lower levels than expected in its first cross-border bond issue since 2004. The Aa3/A/A+ sovereign drew more than $10bn in orders, according to bankers on it, and gave little concession on price. Citi, HSBC and JPMorgan managed the sale, and would be among competitors for the copper producer’s mandate.

BNDES is considering a euro-denominated bond, according to DCM bankers familiar with the issuer, as more of the region’s borrowers gravitate towards that market. The development bank owned by the Brazilian government raised $1bn in January through a 5.5% of 2020 via Barclays and HSBC. This year, 3 corporate Latin issuers, including 2 Brazilians have tapped the euro market, which can offer attractive rates and diversification, though investors say liquidity is still focused on the dollar market. Miner Vale sold EUR750m in 4.375% of 2018s to yield 4.441% in March, and conglomerate Votorantim placed EUR750m in 5.25% of 2017s to yield 5.319% in April. In June, Mexico’s America Movil placed EUR1.75bn in 3.75% of 2012 and 4.75% of 2022 bonds, yielding 3.87% and 4.873%, respectively. The price sensitive issuer claimed to have paid only a 5bp new issue premium, though bankers say fluctuations in rates versus dollars need to be monitored closely. Meanwhile, frequent sovereign issuer Mexico last month placed its first euro-denominated bond since 2005 with a view to establishing a more recurrent presence. And Brazilian corporate Braskem is also considering issuing debt to European investors for the first time.

Sabesp is heard to have chosen Itau and Santander to manage a new bond transaction, according to DCM sources. The Sao Paulo water utility has been planning both local and dollar bond issuance this year, and sent out a USD RFP in June. It is believed to be considering a dollar bond of up to $500m, likely at a 10-year maturity. Sabesp last visited the dollar markets in 2006, according to Dealogic, though it sold BRL1.22bn in the local markets in April.

Fresh off a new $400m dollar bond sale, Argentina’s Cordoba province is offering to buy back $150m in lower coupon bonds that it sold on the local market last year. The government is offering to buy back all of the 12% of 2017 bonds, sold in dollars but payable in pesos, at par plus accrued interest. The offer is open until September 16, and can be extended for as much as a month. Banco de Cordoba, bookrunner on the original, is managing the sale. The province will fund the repurchase with proceeds from the $400m 12.375% of 2017 bond sold earlier this month in the international markets. The bond priced to yield 12.5% in an offer where demand surpassed $1bn. Citi and UBS managed that sale. Cordoba is rated B3. The province is making the offer to comply with the terms and conditions in the original documentation of the bonds, it says.