Brazilian state oil company — and the country’s biggest debt issuer — Petrobras postponed the release of its audited third-quarter results in mid-November amid investigations into corruption allegations, sending shockwaves through the debt markets and pushing issuers to the sidelines. Volatility increased as the investigations spread to some of Petrobras’ Brazilian construction contractors.
Investors welcomed the nomination of Joaquim Levy as finance minister in late November, although it was not enough to calm the storm. The former head of Bradesco Asset Management vowed to tighten fiscal policy, but investors noted he has a long way to go until he meets his ambitious targets.
A planned bond from Marfrig became a victim of the Petrobras affair. The Brazilian food producer was forced to pull a $600 million bond sale intended to finance a liability management exercise in late November. The B2/B+/B rated borrower said investor demand was insufficient to meet its pricing expectations, but that it was likely to return to the deal once conditions improve.
JBS’ planned liability management exercise suffered the same fate in mid-December. The protein company pulled a $750 million 2025 bond after issuing initial price thoughts of 6% to 6.25%. “You see ugly headlines about the scandal and people don’t yet have an understanding of how far it extends, what companies may be involved in it or may be affected by it, and as a result, the market is becoming very illiquid,” a market source said at the time.
Not everything was sidelined: Rio de Janeiro state pension fund Rioprevidência was able to sell its second securitization this year, a $1.1 billion 2027 deal in mid-November, just as Petrobras concerns gathered steam. But the Brazilian market was expected to stay muted for several weeks, with borrowers likely to wait for calm before proceeding with new issues, sources said.
Outside Brazil, conditions were better. The Republic of Chile returned to the euro market in early December. The Aa3-/AA-/A+ rated sovereign sold a €800 million ($985 million) 2025 bond, increased from the €600 million targeted, in tandem with a dollar bond that formed part of a liability management exercise. The euro tranche was heavily subscribed, allowing the borrower to tighten the pricing over the course of execution.
The United Mexican States filed a prospectus in the US in November to issue bonds with new collective action clauses that follow recommendations by the IMF and the International Capital Markets Association. The registration is part of the sovereign’s bid to meet “best international practices” in its bond sales, Alejandro Diaz de León, head of public credit, told LatinFinance. The sovereign priced a heavily-subscribed $2 billion 2025 bond soon after.
Also in Mexico, tortilla maker Gruma sold a $400 million 10-year bond in mid-November, in its first transaction since Fitch lifted the company from BB+ to BBB-, while construction supply company Elementia raised $425 million in the same tenor.
Among financial institutions, BBVA Bancomer sold a $200 million 15-year non-call 10 bond in early November, the second Basel III-compliant tier two note sold by a Mexican lender, in a deal that was four times subscribed. “We thought that this was a very good moment to do an international dollar-denominated sale … given that US Treasury rates are at a very low level and next year or the one after they could start rising,” deputy chief financial officer Ernesto Gallardo told LatinFinance at the time.
A string of other financial institutions raised funds in the Swiss market, taking advantage of strong demand for highly-rated Latin American issuers and improved currency swap conditions. Chile’s BCI, multilateral development banks Cabei and CAF, and Brazil’s Banco Safra all issued Swiss franc notes. LF