Although interest rates remain hovering around all-time lows, it has been a tough year for Latin America’s capital markets borrowers.
Those from Brazil have been hardest hit. Investors shunned the country through May as uncertainty swirled over the ultimate extent of the Lava Jato corruption investigation. The absence of Brazilian issuers in the cross-border bond market was thought to drive the 40% year on year slump in new debt sales from Latin American borrowers in the first half.
Issuers from other parts of the region have also faced tougher markets. US Treasury rates have steadily risen since January, driving up borrowing costs for those companies looking at dollar issuances. At the same time, the cost of debt servicing has also risen for some as local currencies have slumped against the dollar.
Analysts and traders continue to speculate over when the US Federal Reserve will lift interest rates, possibly driving a more sustained rise in dollar borrowing costs. Forecasts of a rate hike in September are waning; some say it might not take place until December. But Latin America’s issuers are surely used to the specter of Fed action by now: the end of the extraordinary monetary policy has been the subject of speculation since shortly after its implementation.
Greece’s stand-off with creditors, China’s plummeting stock market and Latin America’s economic slowdown are also making investors cautious when they examine the allocations of their portfolios.
Despite the uncertainties — and it seems like there is no end to the wild cards lurking — Latin American companies have pushed ahead with financings when they have seen opportunities. That has made for some daring deals.
Petrobras, the subject of this edition’s cover story, stunned markets in May when it launched a 100-year bond. Coming from an emerging market borrower in the center of a corruption investigation, it was an audacious move.
Others are also refusing to let market convention hinder their funding strategies.
Votorantim Cimentos broke a nearly six-month hiatus of Brazilian borrowers in internatio
nal bond markets. Its €500 million bond was hailed as a sign of increasing market confidence.
Peruvian development bank Cofide also did not let financial drama in Greece deter it from issuing a $600 million note in early July. The deal came two days after Greek voters rejected a bailout plan, possibly putting the country on course to exit the eurozone. A day before the triple-B rated borrower hit the market, several advisors told LatinFinance that Latin Americans would likely have to wait for a recovery in US bond activity before they could bring their own transactions.
Anecdotal evidence indicates that many LatAm companies have less need for funding than in previous years. But for those that do, bold moves may be needed. LF