Latin America’s corporate issuers face a high-risk refinancing environment, with some $30bn in cross-border bonds coming due between now and the end of next year, Fitch analyst Jay Djemal told LatinFinance.
“The impending hangover will be a big one,” he said. “It will require being proactive to refinance debt as soon as possible.”
After $262bn in bond issues between 2011 and 2014, more than $312bn in non-financial corporate bonds will mature through 2030, including $207bn between 2019 and 2024, according to a report by Fitch.
“Half of these bonds belong to high-yield issuers. The terms and the tenors won’t be as favorable as they used to be,” Djemal said.
A recent $1.25bn five-year private placement from Brazil’s Vale illustrates how investors see more risk from Latin America’s corporate issuers, Djemal said. The deal marked the iron ore miner’s first return to the international bond market since 2012, when it sold a $1.5bn 2042 bond, but at much shorter tenors than before, he said.
“In the case of Vale, the five-year timeline suits the company. It has also announced that it is deleveraging $15bn of net debt through asset sales. Once it has deleveraged, it will probably return to the market with a long tenor and a better coupon,” Djemal said.
Vale’s latest deal priced with a 5.875% coupon. The miner has a $1bn in notes due in 2019 with a 5.625% coupon.
Lower-rated issuers may find it difficult to refinance existing debt, Djemal said. Cement maker Cimento Tupi, for example, has $185m in cross-border bonds maturing in 2018. The company found it impossible to access the capital markets last year and it has missed three interest payments and defaulted on loans from the Agricultural Bank of China and the Minas Gerais state development bank BDMG. Fitch now gives Cimento Tupi a restricted default rating.
The debt capital markets have reopened for corporate issuers in the first half of the year. Latin American companies sold $22bn in bonds in the first six months of 2016, compared to just $5bn in the second half of 2015. Latin America’s lower-rated companies issued $37bn in debt in 2015, down from more than $77bn in 2014, Fitch said.