A lack of new international bond sales from Latin America has propelled demand for the few issuers that do come to market. Those transactions have been metaphorically mobbed by investors, with order books heard to be subscribed by three or four times.
“The new issue market is in demand right now because there really hasn’t been a lot out there,” an investor told LatinFinance.
The absence of Brazilian borrowers has been behind much of the slow market. The country typically accounts for a sizeable share of new bond sales out of Latin America. But as uncertainty lingers over the ultimate limits of corruption investigations in Brazil, investors have been wary of buying paper from the country.
Petrobras, at the center of the investigations, released much-delayed audited financial results for the third and fourth quarters of 2014 in late April. The clarity provided in those documents, as well as expectations of low US interest rates to persist, could open doors for corporates wishing to tap the market.
Indeed, in the days after Brazil’s state-owned oil company published its financial statements, YPF and Empresa Eléctrica Guacolda tapped the market, pulling in heavy books. The Argentine oil company sold an 8.5% $1.5 billion 2025 bond. The company priced the note below guidance of 8.75% and tripled the $500 million the company initially sought, although that amount had already been subscribed on a reverse inquiry basis.
Chile’s Guacolda sold a 4.56% $500 million 2025 bond, and was heard to have drawn an order book of some $3 billion. That underscored just how hungry investors are for Latin American corporate paper, an investor said.
Others looked set to follow: development bank Bladex, Colombian oil company Pacific Rubiales and Mexico’s JB y Compañía, which owns tequila maker José Cuervo, were on the road for possible issues.
Sovereign lead
Brazilian borrowers might even be next. After Petrobras’ results were released, investors said they expected the sovereign to tap the market, a move that would open cross-border opportunities for Brazilian corporates.
Sovereigns elsewhere in the region have received a warm welcome. The United Mexican States glittered once again in the bond market when it turned to European investors to launch its third 100-year bond. The €1.5 billion ($1.6 billion) deal yielded 4.2% and was 4.2 times subscribed, snatching demand from an investor base resigned to ultra-low local yields for years to come.
Argentina, which failed to sell a dollar-denominated bond in February and is still battling with holdout bond owners, tapped its local market with dollar sale. The sovereign added $1.4 billion to its 8.575% 2024 bond, far more than the $500 million originally sought. NML Capital, the holdout creditor leading litigation against Argentina in the courts, was unimpressed, saying it would closely scrutinize potential action.
Paraguay reopened its 4.625% 2023 bond in late April to add $280 million. The sale was priced to yield 4.15%, tighter than initial thoughts of 4.25% area.
Meanwhile, investors have pushed back predictions on when the US Federal Reserve might raise interest rates, which have been near-zero since 2008, on the back of weaker economic data. The US added 126,000 jobs in March, a 15-month low, and analysts forecast the US economy to post 1% annualized growth in the first quarter.
With low interest rates hanging around longer in the US, Latin American issuers might have a little more time to offer tantalizing yields to northern investors while still locking in decent funding costs. LF