Volatility from European sovereign debt worries, coupled with tightening spreads, could push the lull in LatAm bond issuance well past next week’s Carnival break, bankers and investors say. Despite being liquid, investors are inclined to wait until after a re-pricing expected when the Greek debt crisis resolves. “After last year’s rally in risk assets, markets are taking a breather, and I think investors are now going to be more selective,” Chris Kelly, senior portfolio manager at Fortis Investments, tells LatinFinance. “For each deal, it’s going to depend on the technicals and how well they price,” adds the manager of more than $3bn in EM debt. Investors are confident that there are still plenty of viable issuers in the region. “Most of the countries and a lot of the corporates in Latin America are very well-positioned to deal with whatever the world throws at them because of Greece,” Luz Padilla, head of EM debt at DoubleLine Capital, tells LatinFinance “From an investor point of view, if I can buy something at wider levels in a month or two after the Greek situation plays itself out, I can be a bit more patient,” adds the manager at the startup, which is not disclosing AUM. Volatility surrounding Athens’ woes has not reached its peak, says Padilla. This is keeping investors, and therefore issuers, on the sidelines. Deals from BES Investimentos Brasil and Vanguarda do Brasil were recently pulled, while several others are stuck in the pipeline. JPMorgan meanwhile downgraded its EMBIG index to marketweight from overweight, on fears that Greece will further dent risk appetite. “It’s not complicated – risk appetite will be back when volatility subsides,” says a New York-based DCM banker. He adds that he is unsure when clients in his pipeline will be able to come at acceptable levels. The list of LatAm DCM hopefuls includes Bradesco, Itau, and BBVA Bancomer, Marfrig and the City of Buenos Aires.
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YPF Approves Notes Sale
YPF has approved a local bond issue of ARP100m and $50m in size. The oil producer says the first tranche could be increased to as much as ARP300m and the second is capped at $100m. Both are from a $1bn program approved in 2008. YPF gives no detail on tenor, timing or underwriters.
OHL Units Plan Debenture Issues
OHL Brasil units Centrovias, Autovias, Intervias, Rodovias and Vianorte are planning to issue up to BRL1.1bn in debentures. Centrovias wants to issue BRL350m, Autovias BRL300m, Intervias and Rodovias BRL250m each and Vianorte plans to sell BRL200m. Itau is managing the issues.
Moody’s Rates Invepar BRL Bond
Moody’s has assigned a Ba2 rating to Invepar’s 10-year BRL450m amortizing local unsecured debentures that are guaranteed by the Brazilian infrastructure company’s subsidiary Linha Amarela (LA). The outlook is stable. The rating action reflects LA’s stable and predictable cash flow of the guarantor, which is supported by a long-term concession contract for toll road services. LA, says Moody’s, also has strong credit metrics for the rating category and a relatively long track record of improving operating performance since 1998. Proceeds of the issue will be used to capitalize Concessao Metroviaria do Rio de Janeiro, its Rio subway subsidiary through the acquisition of 10-year bullet payment debentures to be issued by Metro Rio. The latter will primarily use the proceeds of these private debentures to amortize existing short-term debt estimated at around BRL170m and fund the acquisition of new train cars of around BRL280m.
Masher Extends Swap Again
Mastellone Hermanos, owner of Argentina’s La Serenisima dairy brand, is extending for the third time the deadline on a $222.5m debt exchange offer to February 26 from February 12. The dairy producer known in the bond markets as Masher says it has received consent from holders of $171m so far, representing 76.9% of creditors. Mastellone wants to exchange up to $222.5m in bonds and bank debt maturing 2011-2013 for new 2015 notes paying Libor plus 2.5% (capped at 6% all-in) and 2018s paying 7.0% initially, stepping up to 9.0% in 50bp annual increments starting January 2012. The swap will not reduce net debt. Bank of America-Merrill Lynch, hired in August to evaluate financial alternatives, is managing the process. Mastellone launched the offer early December.
GEM Outflows Hit Peak
Outflows from GEM equity funds hit a 60-week high of $1.76bn in the week ended February 10, says EPFR Global, adding that LatAm equity funds also recorded net redemptions for the third straight week that left them in negative territory year-to-date for the first time since early Q108. However, Lipper data shows that for the week ended February 11, LatAm equity funds returned 4.95%, although still down year-to-date with a drop of 8.56%, the highest of all equity funds Lipper tracks. Meanwhile, EM equity funds were up 1.33% for the week and down 5.17% ytd, and global small and mid-cap funds gained 1.14% on the week and are off 3.39% ytd.
EM Bond Funds Enjoy Inflows
EM bond funds received almost $700m in the week ended February 10, their best week since November, according to EPFR Global. “The flows into EM bond funds still favored those funds investing in local currency debt, generally perceived as riskier, but their share of overall inflows continued to slide, dropping to 43% versus over 95% during the fourth week of January,” the shop says. Performance was also positive, according to Lipper, with EM debt funds up 0.19% on the week ended February 11 and 0.19% year-to-date. Global income funds fell 0.19% for the week and are up 0.52% ytd, while international income funds dropped 0.08% in the week and have also lost 0.13% ytd.
Panama on Upgrade Review
Moody’s has placed Panama’s Ba1 foreign currency government bond rating on review for possible upgrade, taking it closer to reaching investment grade, in response to the country’s significantly improved fiscal and debt positions over the past several years and of a structural upward shift in economic growth. Together with the Panama Canal expansion, intentions to undertake an ambitious infrastructure development program are likely to sustain growth rates in the next few years, says Moody’s. The new administration has announced plans to spend around $14bn over the next five years, or the equivalent of 7.0% of GDP annually, with the aim of further developing Panama’s role as a logistics hub and of diversifying the economy. Moody’s also highlights Panama’s ability to survive the global financial crisis. “Even though GDP growth declined sharply last year, it remained in positive territory at around 3%, according to preliminary estimates,” it says, adding that there was no significant deterioration in government debt metrics. The fiscal deficit came in at just 1.0% of GDP in 2009, well below the 2.5% of GDP limit established by the Fiscal Responsibility Law. S&P and Fitch also have Panama’s ratings just one notch under investment grade with positive outlooks.
Infrastructure Issuers Flock to Float in Brazil
Julio Simoes, a logistics operator, has filed for an IPO on the Bovespa to become the fourth infrastructure-related company to seek to raise shares in the past month. There are currently 6 initial offerings on file. Julio Simoes, a little known provider of services ranging from supply chain management, fleet outsourcing, public and private passenger transportation and cargo services, had Ebitda in 2009 of BRL240m, up from BRL200m in 2008. The company does not specify a target amount for the issue. Bradesco and Credit Suisse are leading. Julio Simoes joins a pipeline that includes OSX, the Eike Batista shipping company, Ecorodovias, the tollroad operator, and Mills, a heavy construction material provider in the general infrastructure space.
Cruzeiro Nips in for Debt Before Carnival
Banco Cruzeiro do Sul has raised $250m in new 2015 bonds, fitting the issue in before the Brazilian Carnival holiday amid continued volatility in the global markets. The Ba2 offering priced at 99.007 with a 8.500% coupon to yield 8.750%, in line with 8.750% area guidance. Bankers on the deal spot the demand at about $280m from more than 100 accounts. BCP and BTG Pactual managed the 144a/Reg S sale, marking a debut for the latter in this market. Cruzeiro sold $175m in 2012 bonds in September to yield 8.5%, also through BCP. A general decline in risk appetite has not deterred some Brazilian banks from issuing, with Banco Votorantim pulling off a $500m 3-year deal earlier this month. However, larger expected issuers heard wanting 10-years, such as Bradesco and Itau, appear to be waiting.