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Emerging MarketsEM LatAm

LatAm Letter: For whom the taco bell tolls

Mexican tacos, beef, street food, Mexico city, tortilla, hungry, LatAm, 575

LatAm bond bankers, I hope you’re hungry

Origination bankers in New York are again flocking south to visit Latin American issuers. Some 13 of the 15 LatAm DCM heads that GlobalCapitalsurveyed in the past two weeks said they were already carrying out client visits in the region; just two are waiting until 2022. But, in Mexico at least, bankers are largely being directed by issuers to seek out restaurants, cafes and bars with suitably ventilated terraces for their meetings.

One DCM head said this new Covid-safe form of meeting was a bit much for him. How is he supposed to maintain his carefully procured pandemic-era beach bod while packing 10,000 calories a day just seeing his clients? Another LatAm bond chief recently back from Mexico said the tacos were as moreish as ever, but that this was the only consolation for missing bedtime with his children. Your correspondent, also just back in Bogotá from Mexico City, concurs on the quality of the grub — though is currently about 80% corn, so perhaps not the most impartial judge.

For most in global financial markets, it’s budgetary belt-tightening — rather than trouser belt-tightening — that will likely lead to less travel, alongside other considerations like carbon emissions and the time savings of Zoom versus planes and in taxis.

Is Latin America slightly different? Some think so, given selling LatAm bonds requires being on the pulse on “local content” — banker speak for trying to comprehend what on earth is going on in this region (more on El Salvador’s volcano bond below). Then there are the clichés about the Latin American way of doing business: the importance of close personal relationships, building trust over time etc. Some of these stereotypes are probably based on reality.

LatAm bankers occasionally like to think their jobs are a tad more exotic and unpredictable than developed market bond pros, which necessitates more on-the-ground action. To paraphrase another LatAm debt head, US IG DCM guys are “cogs in the machine”, fussing over whether a new issue concession should be 2bp or 3bp. Comparatively, LatAm bankers are “ninjas”. LatAm bond journalists, too, surely?

What does this mean for LatAm DCM travel habits in the future? There is little consensus — not even on where to get the best taco in Mexico City. But we suggest checking out the full write-up of our findings here. If you still need access, drop my colleagues Phil and Kat a line at / for a trial password.

Crypto eruption

Before proceeding to the next section, please watch at least the first 55 seconds of this video from President Nayib Bukele of El Salvador. And take notes for next time you want to brighten up a roadshow presentation.

It is indeed roadshow presentation for Bitcoin City, a volcano-powered city of no taxes in El Salvador that — you will have heard by now — will be financed by $1bn of ‘Bitcoin bonds’. Or Volcano bonds, take your pick.

Safe to say, EM investors not only won’t be buying the notes, but they don’t like the idea either. The initiative puts the country even more firmly on the “anything but the IMF” path, as Nathalie Marshik at Stifel termed it. Bond prices tumbled to new lows, and the chances of the market filling a 2022 funding gap that Fitch estimates at close to $1bn went from to as slim as a pupusa to slimmer than an empty taco.

Whether Bukele’s scheme is successful or not — and maybe there are $1bn worth of people who back El Salvador to become the “Singapore of digital capital markets” — we argue here that the Volcano bonds are a perilous experiment for a fragile economy.

If you thought El Salvador had carried out a detailed risk assessment of issuing debt to buy cryptocurrency, take a look at the Concluding Statement of the IMF’s Article IV Mission to the country. The section on Bitcoin is almost — almost — as entertaining as watching Bukele being beamed onto stage with AC/DC as a soundtrack.

From the IMF note:

“The plans to issue sovereign bonds and use the proceeds to buy Bitcoin and fund infrastructure plans announced on November 20, occurred after the technical work of the mission concluded, and were not discussed with the authorities.”

Unfortunately, facepalm emojis are not in the GlobalCapital style guide.

Dormant market

El Salvador at least kept us entertained during the quiet Thanksgiving week. Cabei, with a green bond in Swiss francs followed by a Norwegian krone, was the only LatAm issuer to raise funds in the international market.

For the rest of the year, Chile is likely to occupy investor thoughts as Gabriel Boric and Jose Antonio Kast gear up for a December 19 Left versus Right run-off after taking the top two spots in the first round of the presidential election. Kast’s victory did provide some respite for Chilean assets, though there is still plenty of reason for caution.

We also spoke to bankers and investors about prospects for Brazilian issuance. Some reckon a rally in Brazilian corporate bonds — broadly considered cheap after a sell-off caused by fiscal concerns — is overdue. When this occurs, according to syndicate banker theory, it will set the market up nicely for a wave of Brazilian deals in January as issuers frontload funding ahead of next October’s election. Some investors are not so convinced that the rally will materialise, however, noting that election volatility began long ago, when it became clear that Lula would be running again.

The LatAm Letter is taking a break for the next two weeks, and will next publish on Friday December 17. Write to and obtain free trial access GlobalCapital to continue reading our copy in the meantime.

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 and feel free to pass it on to colleagues and contacts.

The best of this week’s LatAm bond coverage: