Latin American corporate issuers are expected to return to the international bond market to refinance debt and cover funding needs after the US Federal Reserve reaffirmed its projection for lower interest cuts, despite recent high inflation readings, according to analysts.
Following a busy start to the year by sovereigns and corporates, Latin American issuance in the international market waned in recent weeks amid speculation the Fed could lower its guidance for rate cuts this year from three to two at its meeting last Wednesday.
“Fixed income market players in general, including issuers, have been more cautious in recent weeks. With inflation data decreasing but still high and a resilient labor market, there was the possibility of a hawkish tilt in the FED’s message, which ultimately did not occur,” Sandra Loyola, senior research analyst at Lima-based Credicorp Capital told LatinFinance.
“Issuers seeking to enter the market soon could take advantage of the compression in spreads that we’ve been seeing in the region,” she said.
Telecommunications giant América Móvil was the first Latin American issuer to venture into the global market after the Fed meeting, pricing MXN1.75 billion ($1 billion) worth of Mexican peso-denominated notes on Friday.
Colombian issuers may not be far behind, according to Loyola.
Banco de Bogotá, Bancolombia and Davivienda are among the banks that could tap the international market to refinance debt and shore up capital, along with Peruvian development bank Cofide, she said.
LOCAL MARKETS
Meanwhile, Chilean wood panel producer Celulosa Arauco and retailer Falabella could opt to issue debt locally for refinancing needs instead of using the cross-border market, Loyola said, adding that the local power generator AES Andes could be following up this month’s green bond sale with a hybrid bond issue.
Easing cycles underway in the region are boosting the allure of local debt markets. Mexico’s central bank reduced its benchmark rate last week for the first time since 2021 while its Brazilian counterpart cut its key rate for a sixth straight meeting.
“Local markets continue to be an attractive source of financing in the region, especially as monetary easing cycles have advanced steadily in many Latin American markets,” said Kathleen Monticello, emerging markets credit analyst at PineBridge Investments.
“This has led to local rates becoming more attractive than they had been several months ago,” she added.
LOWER US RATES
However, some corporate issuers will remain on the sidelines until US interest rates start declining, according to Paula La Greca, senior corporate research analyst at TPCG Valores in Buenos Aires.
“Companies are waiting for a compression in international rates, which will lower the cost of borrowing. There will not be many issuers coming to the market until the FED begins to lower rates,” she said.
Two Argentinian companies that could be tempted to enter the global market are MSU Energy and natural gas pipeline operator Transportadora de Gas del Sur, the latter by way of a liability management deal for its global notes, according to La Greca.
Presidential elections in Mexico and the US in June and November respectively could also bear on the timing and frequency of new issuance, added Monticello.
“A number of Mexican issuers elected to tap the market earlier this year to get ahead of potential volatility around June elections. Likewise, issuers may want to access the market ahead of any noise accompanying the US elections in November,” she said.