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Emerging MarketsEM LatAm

LatAm Letter: all’s well that ends well

Barranquilla, Colombia, football fans, smile, LatAm, 575

And breathe.

EM bonds have had a rough time recently, with the picture-perfect issuance conditions of a few weeks ago deteriorating in the face of rates sell-offs, Fed tapering expectations, tumult in China, global supply side challenges and inflation concerns.

Thursday, though, brought a much-needed relief. A handy US Treasury rally provided fertile ground for three Latin American borrowers to plant dollar deals, and all notched healthier order books and pricing compression than seen in recent new issues.

“We really needed today,” said one head of EM syndicate, who said he’d been pleasantly surprised by the size achieved by Mexican polyethylene producer Braskem Idesa, and the amount Colombia and Chilean power company Colbún tightened their deals.

Colombia’s public credit office — showing a level of precision and deftness of touch that has deserted its football team’s strikers for almost 300 minutes — timed the market well for a $1bn tap of its 2049s that offered a single digit new issue premium.

Last time the sovereign tapped its 2049s in January 2020, the spread was just 173bp, compared to Thursday’s 311.6bp — a stark reminder of the deterioration in credit quality (this was Colombia’s first deal as a crossover-rated credit in over a decade after recent downgrades to BB+ from S&P and Fitch) and widening of EM spreads. But the government did at least capitalise on the recent mini-rally that followed Moody’s decision last week to not only maintain Colombia firmly in IG territory at Baa2 last week, but to remove the negative outlook on the rating.

Meanwhile, Braskem Idesa’s decision to begin investor meetings on a US holiday on Monday seemed unusual to some, but proved an astute move to be ready to pounce on Thursday’s better conditions as it notched $1.2bn that will allow it to refinance restrictive project finance debt.

Chilly and tired

No one wants to bet heavily on Thursday’s stability lasting a great deal longer, after all. But some investors will probably sleep more easily at the weekend at least. So down in the dumps was one EM bond investor on Wednesday evening that she wanted a vital message to be transmitted through the pages of GlobalCapital.

“Please, please, please no more Chile,” pleaded the PM after watching retail giant Falabella’s new bond — which had looked something of a bargain buy at issue on Tuesday — widen 5bp on its first day of trading.

Amid the broader ups and downs, Chile has dynamics of its own. The dire state of the domestic funding market amid pension withdrawal concerns, combined with imminent presidential elections that may provide a further shock, means that the country’s issuers are carrying on regardless.

New issue concessions have been uncharacteristically high on recent deals as Chileans have opted to push through the volatility, and the large amount of supply has given investors greater pricing power. Chile fatigue may be real, but for those concerned about a potential further sell-offs, issuing now is still a worthy insurance policy.

“Maybe we Chileans look a bit desperate to the outside world, but I think it’s because we in Chile are far more pessimistic than those on the outside,” said one market participant in Santiago.

In any case — despite social unrest, the new constitution, pension fund withdrawals, electoral uncertainty, and the pandemic — Chile is still the best-rated jurisdiction in Latin America. And Colbún, tightening 35bp from IPTs on Thursday, showed that, on a good day, Chilean issuers can still get decent results.

Thankfully for the Chilean banks, there’s still attractive funding in Switzerland. Amid the domestic stress, Chilean issuance volumes in Swiss francs reached an all-time high this week, with Santander Chile, Banco de Estado and Banco BICE all issuing. It is the first time ever that Santander Chile has tapped Swiss francs twice in a year — this did not stop it pricing some 40bp-50bp inside its peso curve on a post-swap basis.

The macro agenda

Given the number of macro headwinds blowing right now, some investors may have preferred to be in Washington DC this week for the IMF and World Bank Annual Meetings. Alas, the meeting remained largely virtual — yet again depriving the team at GlobalCapital’s sister paper GlobalMarkets of their favourite autumnal pastime: quizzing rather peeved-looking Argentine finance ministers about the fiscal deficit at the hotel breakfast buffet.

Arguably the biggest news out of DC this was the confirmation on Monday night that Kristalina Georgieva would remain in her seat as MD at the IMF. Good news, reckon several EM investors — “the world doesn’t have any time to waste and all member states should have an interest in the stability of the emerging markets investment climate,” says Simon Quijano-Evans at Gemcorp.

GlobalMarkets’ coverage of this year’s meetings was therefore mostly focussed on what’s going on away from DC. Do check out our free-to-read pieces on the developing world’s cries for help, El Salvador’s financing challenges, and the impact on EM of the global gas price surge and China’s likely slowdown.

Do get in touch for a free trial to access all of GlobalCapital.

Saludos, Olly

This is GlobalCapital's LatAm Letter written weekly by Latin America reporter Oliver West. If you enjoy it, sign up for free in a matter of seconds here to receive it each Friday, and feel free to pass it on to colleagues and contacts.

The best of this week’s LatAm bond coverage:

The best of GlobalMarkets’ IMF/World Bank Annual Meetings coverage (free-to-read)


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