LatAm Letter: Don’t you step on my blue trade news
An unusual restructuring catches the eye
By now, most readers will know the story of Belize’s blue bond restructuring, which settled — most conveniently for the PR teams of all involved — bang in the middle of COP26.
If you don’t, here’s our full write-up, free-to-read on Euromoney’s COP26 pop-up site. Essentially, debt-distressed Belize has, via The Nature Conservancy (TNC), used a blue bond arranged by Credit Suisse to buy back its troublesome international bond at 55 cents on the dollar.
In return, the country with the second largest coral reef in the world will channel more funding towards marine conservation. The DFC, the US’s development finance arm, got involved with a guarantee that gives the blue bond an Aa2 rating and drastically reduces Belize’s cost of funding.
The deal was perfect bait for journalists of all stripes looking for sexy climate finance stories and keen to use photos of cute turtles with their articles, and some bond market observers appear peeved at the wide publicity granted to those involved.
Indeed, the deal is not without its naysayers. Debt and development network Eurodad argues that Belize's ability to achieve the fiscal performance assumed by the blue bond programme is “highly questionable on several grounds”. Others in the market argue the blue angle of the deal is being over-egged given the endowment fund for marine conservation is just $23.4m.
At GlobalCapital, we are no Johnny-come-latelys when it comes to Belize’s frequent debt restructurings, and recall that it was just six months ago — before TNC stepped in — that the government and bondholders had something of a public falling-out over the IMF and GDP rebasing.
True, at that stage coral reefs did not appear to be at the forefront of creditors’ minds. But that’s kind of the point.
Without the blue angle, the development bank of the richest country in the world would not have put itself on the line for Belize credit risk, thus making this deal possible. It’s also likely this deal “seized on the fact investors are desperate to prove their ESG chops”, reckons one analyst, making it was far easier to get bondholder approval.
We therefore argued this week that the fact Belize has derived genuine benefits from its venture into blue bonds make this a win-win. Debt for nature swaps may not save the world, but if they ease the path to climate change mitigation for developing countries, something right must be happening.
What’s more, this may spur on similar deals. Marisa Drew of Credit Suisse told us she thinks there are “20-odd” countries that could qualify for the TNC debt swap for nature programme
“Countries are being vocal about wanting to support conservation, so it becomes a question of marrying that intent with the desire of NGOs to help,” said Drew, the Swiss bank’s chief sustainability officer.
It’s now or never
Well, Treasury sell-offs can knock me down, step in my face, but they can’t stop EM deals getting printed. A veritable primary market deluge from CEEMEA this week was accompanied by two LatAm new issues on Wednesday — despite the highest inflation print in three decades in the US triggering a double digit widening in 10 year Treasury yields.
Predictably, bookrunners thought Peru paid a lower concession (5bp-ish) than bankers away from the deal (15bp or more) for its 15 year social bond in euros. But a €1bn bond at 2.071% will probably end up looking like smart funding given all the policymaking uncertainty in Peru right now — especially as it took the sovereign’s annual external issuance over $10bn-equivalent for the first time ever. (Fun fact: this time last year, the sovereign thought it was not going to issue at all in hard currency in 2021.)
There’s also been no shortage of Chilean supply recently. With presidential elections looming large on November 21, most thought we were done by now, but Telefónica Móviles Chile had other ideas. The company’s $500m 10 year attracted around $1.25bn of orders on Wednesday and offered some 10bp-15bp pick-up to lower-rated peer Entel — perhaps not surprising given the Treasury move and recent glut of Chile issuance.
Some LatAm bankers say they have a few more deals to come in November — which, in essence, means before Thanksgiving on November 25, so a rather tight window. But much will depend on Monday’s tone as Veterans Day plus an expected quiet Friday means we will have effectively had a four-day break since Wednesday’s volatility.
Return to sender
One deal sadly has, so far, failed to print — though it has little to do with Treasuries. Kaltex, the CCC/CCC rated Mexican textiles producer, cancelled a tender offer for its $220m April 2022s on Thursday after failing to price a new issue that would have financed the debt buy-back. This leaves bondholders in a precarious position (S&P reckoned that without a new issue, default was a strong probability), but bankers say keep an eye out, as the shareholders have offered strong support to the credit in recent years.
Have a great weekend, and do get in touch for a free trial to access all of GlobalCapital.
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: