A blackout, or staleness, period has slowed Latin America’s corporate bond market, giving issuers a chance to ready their Q4 financials, DCM sources have said.
And after last week’s sell-off of US Treasuries, the region’s credits will welcome the opportunity to reassess their debt raising plans for 2018. “This blackout period came at a good time,” one banker said.
Despite four credits tackling last week’s market volatility, Peru’s Camposol opted not to sell bonds. The agribusiness had sought up to $300m from the cross-border bond space to fund a tender offer for any and all of the $147.4m it has in outstanding 10.5% 2021 bonds.
“I think [Camposol] could have come if they wanted to but they can always do the LM in a few months time,” a second DCM banker said of Camposol’s buyback.
Camposol on Tuesday then shelved the tender offer, effectively culling any chance of a new debt issue in the immediate-term. Talks of a bond sale emerged after the agribusiness halted IPO plans. An equity offering could still emerge at a later date, ECM sources have said.
Bank of America Merrill Lynch was the sole bookrunner for the planned bond sale. The US investment bank was also part of the deal team involved in Camposol’s IPO.
Risky business
With a number of federal elections throughout the region slated for this year, issuers risk issuing debt amid political volatility, a second banker said.
Last week, Mexico’s Unifin braved choppy market conditions because it may face a reluctant investor base after the blackout period, the second banker said. In addition to the country’s upcoming election, the uncertainty surrounding the future of NAFTA will impact credit spreads and the cost of capital, forcing some Mexican issuers to tap investors in the early stages of 2018.
The financial services firm raised $300m in 7.375% 2026 non-call four paper.
Likely interest rate hikes from the US Federal Reserve later this year will also impact the cost of raising debt and thus, corporate treasurers’ decision making. In Mexico’s case, its central bank got ahead of its US counterpart and raised rates by 25bp to 7.5%.
Banxico said in its accompanying statement last week that inflationary pressures and the need to keep apace with the Fed guided its decision to hike interest rates.
Sovereign flurry
While corporates prepare and reassess with their revised financials in hand, sovereigns are largely expected to fill the void. Paraguay and El Salvador are candidates with funding requirements.
Paraguay seeks as much as $600m in cross-border bonds this month to shore up external financing needs before its own presidential election in April.
El Salvador’s government got the green light to print $500m in the bond market this year. Sources previously told LatinFinance that officials need funds for $800m it has in December 2019 principal bond payments. The Central American sovereign issuer also has congressional elections this March and presidential elections in February 2019.
Oil-exporting Colombia, however, simmered talks of a cross-border bond sale in the immediate-term, according to DCM sources. The sovereign issuer is assesing multilateral loans to meet its $2bn in 2018 external funding needs.
Like several of its neighbors, 2018 is an election year for Colombia. Left-wing Gustavo Petro and his Progressivists Movement Party currently lead the polls in Colombia with 23% of intended votes, according to a February 8 poll. Former Medellin Mayor Sergio Fajardo is in second place with 18% and former Vice President German Vargas Lleras is third with 10%.
“Investors are beginning to pay attention and things do not look great,” a bond buyer said this week.
A second buyside source said Colombia’s budget deficit, along with its ratings downgrade, may have also contributed to the sovereign’s decision to steer clear of the cross-border bond market.
“With this in mind, and the elections coming up, it is probably a wise decision to stay away if they can,” he added.
The first round vote is in May followed by a run-off in June.
In December, S&P Global Ratings downgraded Colombia to BBB- from BBB, citing weaker than expected growth and a high level of external debt.