Interview with Michael Jakob

Managing Director Global Emerging Markets Loan Syndication at Credit Suisse 

Latin America’s loan volumes in the last quarter of 2020, not surprisingly, are on track to be below the same period last year. However, there is growing pricing pressures in several sectors that indicate activity and competition for loans is heating up.

Positive noises around several coronavirus vaccines under development and the conclusion of the fraught US presidential elections in November have helped bring greater clarity and predictability to Latin America’s major economies, and with it the need for finding the financing to get out of the crisis.

More prosaic concerns among bankers including the need to meet certain return targets have also helped drive an increase in lending in the tail end of 2020, according to Michael Jakob, Managing Director Global Emerging Markets Loan Syndication at Credit Suisse in New York.

“Slowly, what we have observed, is that people are talking about working down their bilateral pipeline,” he said.

Image: Michael Jakob

There were some tentative signs of the syndicated loan market beginning to warm up in the last few weeks of the quarter.

Nevertheless, across the region Jakob noted that loan volumes still remain down “probably” around 60% compared to same period last year and well below peaks achieved in previous years.

“The market is reopening and we have actually observed some very aggressive pricing all of a sudden, but that is on a case-by-case basis for high-grade names,” said Jakob.

Loan volume in the year-to-date period through December 1 shows roughly $17.7 billion worth of loans made across 46 deals in the Latin America and Caribbean region, according to data provider Dealogic. That represents a better than 60% drop from $45.8 billion across 86 deals in the same period a year ago.

Among the sectors seeing increased loan activity is the energy sector. This is especially true among hybrid producers and utilities taking steps to increase their share of renewable energy, where prices have tightened “significantly” and are now approaching pre-COVID-19 levels, he said.

Atlas Renewable Energy, a division of UK-based emerging markets investment firm Actis, recently drew notice by taking out a $67.2 million loan to fund construction of a solar farm, marking the first time a solar project in Brazil has been fully financed in US dollars.

IDB Invest, the private sector division of the Inter-American Development Bank (IDB), has also helped drive activity in the sector. As an example, it lent $25 million to Peru’s BanBif to finance medium-sized companies and green projects.

Elsewhere, Brazilian data center developer Odata told LatinFinance it began discussions to finance around half of a $100 million investment in a new data center in Mexico with loans, project financing or a mix of the two from commercial banks or multilateral lenders.

Looking ahead to the first quarter of 2021, Jakob said he expects a slow, credit-focused recovery and expects the recently-adopted term EBITDAC – Earnings Before Interest, Taxes, Depreciation, Amortization, and COVID-19 – to remain firmly in the lexicon of many bankers.

Although five year tenors and, in some specific cases, longer tenors may become more common as bankers become more comfortable with companies whose business models have been tested by COVID-19, he predicts these will remain relatively few and far between.

“Personally, I think there will be an uptick because among issuers there is [increasing] talk on the side lines of re-financings and investment activity, but personally I don’t expect a recovery to the record volumes of 2018 or 2019,” he said.