Year: 2021

Winner: Mercado Libre Inaugural USD and Sustainable Bond Issuance

E-commerce giant Mercado Libre had been the focus of equity investors for some time before it decided to tap international debt markets for the first time in January 2021.

Traders on bond desks were no less warm to the charms of the company. The successful placement in January 2021 of $400 million, 5-year and $700 million, 7-year notes achieved rates of 2.375% and 3.125%, respectively— historically low rates for high-yield companies in Latin America, let alone for a first-time issuer.

“Until then, we had used funding from the cash generated by the business itself, or from equity and equity-linked instruments,” Pedro Arnt, CFO of Mercado Libre, which wins the award for Corporate High Yield Bond of the Year.

But by the end of 2020, the company had reached a stage where debt became an attractive financing option, especially given occasional cash flow requirements for future investments in activities such as enhancing of its logistics structure, developing new products and entering new growth markets.

The company was also confident it would generate ample cash moving forward, Arnt says, so the timing looked right to opt for debt.

“Part of the money was used to structure the company’s capital in a more efficient way. For example, by replacing convertible bonds by non-convertible ones,” he tells LatinFinance. “The general market environment was a factor we analysed when decided to go ahead with the deal, but it was also one of those situations where it was possible to align the issuance with historically low spreads.”

One of the distinctive aspects of the deal was that the five-year tranche was certified as a sustainable bond, with proceeds earmarked for projects with a strong ESG element.

For example, Mercado Libre has a reforestation project targeting iconic biomes in the region, starting with native forests in the state of São Paulo, in Brazil.

“We are not buying carbon credits. We are going straight to the source by investing in reforestation in order to generate, in five to ten years, the carbon credits that other companies will buy,” Arnt says.

Another portion of the proceeds will be used to provide loans to logistics partners, to enable them to replace fossil-fuel fleets with electric vehicles and, ultimately, hydrogen-powered cars.

Mercado Libre also has a program to direct microcredit for micro entrepreneurs across the region, with an emphasis on small companies owned by women. – LF