LatAm Letter: A brief history of timing the bond market
Three issuers enjoy better days
The market does not seem radically different to the one that had been somewhat sucking the life out of EM new issues earlier in October. Inflation is still a global concern, the Fed is still likely to taper in November and the Chinese real estate sector is still in, well, a real state despite Evergrande paying its bondholders.
Yet the trio of Latin American borrowers that tapped bond markets this week will probably consider they timed it right. Peruvian miner Minsur, Colombian oil and gas company Ecopetrol and then the Peruvian sovereign found the going good with decent books and pricing tension, even if healthy new issue concessions across the board remain the order of the day.
Ecopetrol, in particular, may feel relieved to have notched $2bn across two tranches as it refinances part of its ISA acquisition loan. Its last deal — which was sold on a Friday (bond market sacrilege) in April 2020 with an oil price at all-time lows and a Covid-19 panic at all-time highs — was, in hindsight at least, a tricky affair. Indeed, the 2030s were sold that day with new issue concession estimates at the time in the 60bp-90bp range. The bonds rallied to a price of 130 before the end of the year (though they are back down to 117 or so now).
This week, however, Ecopetrol had a cheerier time. The government-owned company rocked a book of over $7.2bn even after price tightening, and sold a $1.25bn 10 year and $750m 30 year at a pick-up of around 12.5bp to the curve, according to syndicate bankers. It was hardly a bad result for such size, and the spread to its sovereign of 50bp also looked tight, with the historic differential closer to 100bp.
For its part, Peru has an enviable recent track record of timing the market. Last November, the sovereign nailed the prevailing low rates like few others with a century bond. Then in March, it opted to navigate volatile markets to sneak a chunk of funding a month ahead of elections — just days before investors started to have nightmares about presidents in straw hats.
On Thursday, Peru debuted its sustainable finance framework approved in June, looking to issue new 12 and 50 year sustainable bonds and to tap its outstanding 2051s.
True, bankers away from the deal reckoned Peru may have paid a little extra concession for the bumper $2.25bn 12 year tranche that came as part of the $4bn triple trancher on Thursday, but a book above $10bn — coupled with a glance at the sovereign’s recent performance — suggested it had yet again picked the perfect moment.
Even taking into account a mini mid-week softening in prices after socialist president Pedro Castillo reiterated his call to nationalise the Camisea gas field, Peru’s bonds have traded comparatively strongly over the last month, gaining notable ground on rival pisco producer Chile, in particular.
And though Peru is clearly nowhere near out of the woods when it comes to political volatility, investors did not hesitate to plough money into Minsur’s 10 year new issue on Monday, despite plenty of politically charged discussions over mining in the country so far this year. The Camisea noise did not even deter a strong aftermarket performance — though it is perhaps hard for investors to get worked up about politics when offered a company that has just tripled in size by opening its first copper mine, as Minsur did with the Mina Justa project.
Alas, for now, time was not on side of Dominican electricity generator EGE Haina, which had been weighing up issuing a sustainability-linked bond for as early as Thursday. Wednesday evening’s news that the Dominican Republic’s much discussed tax reform was off the table dissuaded it from bringing its deal to market.
The DR’s decision to go back on its previous tax reform promise just shows how memories of Colombia’s anti-tax reform protests earlier in the year haunt Latin America’s legislators. As Nathalie Marshik at Stifel noted on Thursday, “in the end, the government preferred to face rating agencies rather than protests”.
Right on time
Peru’s sustainable debut and the prospect of a debut SLB from Haina (not to forget Colombia’s second domestic green bond auction) made for a neat warm-up act to the COP26 conference, which begins on Sunday in Glasgow.
GlobalCapital will be reporting from the event and our sister publications — covering everything from capital markets to banking, infrastructure to air finance, legal to tax — will be have all the latest developments in one place. Check out Euromoney’s COP26 Insider here.
Argentine issuers, of course, have learned more times than any others in Latin America that time is of the essence. They usually do a fine job of jumping through those fleeting issuance windows when new markets are open to them, and now that the window is firmly shut, so they are eagerly getting creative with debt exchanges to smooth repayment schedules.
Electricity generator GEMSA has launched a swap looking to refinance its 2023s, while airports manager Aeropuertos Argentina 2000 went ahead with an exchange of its own — even though bondholder participation fell way short of the 75% it was hoping for.
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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 and feel free to pass it on to colleagues and contacts.
The best of this week’s LatAm bond coverage: