Latin America’s higher quality sovereigns are well positioned to access the European debt markets, specifically those with established dollar curves that choose not to hedge the currency risk, sources told LatinFinance.
Sources said a eurobond issue could be an option for Baa2/BBB/BBB rated Uruguay, which has said it intends to issue $1.5bn in the international bond markets this year as part of its 2017 prefunding policy. Uruguay has approximately 1% of its cross-border debt in eurobonds.
“The last time we issued in euros was in 2005, and we haven’t issued in that currency since,” said Herman Kamil, the head of Uruguay’s debt management department. “We see strategic value in diversifying our investor base and funding options, and issuing in euros offers that opportunity. In addition, it can give us the ability to lower funding costs and have more flexibility in deciding issuance maturities.”
Elsewhere, bankers pointed out that Panama closed an RFP in mid-January and could go to the cross-border bond markets before the end of month.
“Uruguay would find interest in Europe, and Panama is a good story,” a banker told LatinFinance. “I think Europeans do value liquidity, and issuers like Panama and Uruguay, which can issue in the size that this market requires, would be received very well.”
Colombia, meanwhile, is monitoring the euro and dollar bond markets to raise $1.5bn for its 2016 funding plan, the country’s director for public finance, Ana Milena Lopez, told LatinFinance in October last year. Colombia’s last issue in euros was more than 14 years ago. Lopez said Colombia could return to the euro market to diversify its investor base and added that it would not hedge the currency risk.
Among the higher-yield sovereign issuers, Argentina could issue up to $8.2bn in new bonds in dollars, euros or a combination of the two currencies if it settles disputes with holdout creditors.
Peru taps euro market
Latin American borrowers have issued €4.914bn in four transactions in the euro market so far this year, including sovereign deals by Chile, Mexico and Peru, according to Dealogic. Latin American issuers have sold more eurobonds than ever on a year-to-date basis of comparison.
“A lot of Latin American sovereigns are issuing in euros, particularly on the long end of the curve and tapping into diversification from continental European buyers,” said a Europe-based syndicate banker away from the trade. He added, however, that the cost of swapping euros to dollars is higher than what a sovereign issuer pays on a new dollar trade.
Peru became the third sovereign this year to tap the euro-denominated bond markets. The sovereign on Tuesday priced a 14-year €1bn ($1.1bn) eurobond at 99.753 with a 3.75% coupon to yield 3.773%, or 295bp over mid-swaps. The spread came in on the lower end of the pricing guidance of 295bp to 300bp over mid-swaps. The initial price thoughts were in the 300bp area.
The issue received €2bn in demand, including orders from accounts in Germany, Italy and the UK, as well as investors outside of Europe.
In exchange for the low yield, Peru was thought to offer a new issue concession of approximately 10bp to 15bp, depending on the mid-swaps fair value spread level for the country’s 2.75% 2026 eurobond. BBVA, BNP Paribas and HSBC were the bookrunners on the issue.
The government intends to use the proceeds for the 2017 budget, leaving the next administration in a comfortable debt position before the April elections.
“Their emphasis now is to diversify external funding and not just rely on US funding rates because there are favorable opportunities elsewhere,” Jaime Reusche, a Moody’s senior analyst told LatinFinance. “It is likely that the authorities will concentrate on US dollars and euros on their external issuance as they want to maintain a solid and stable relationship with international investors, she said.