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Emerging MarketsEM LatAm

LatAm Letter: Carnival in the balance

Middle age senior grey-haired man wearing Brazilian carnival custome over yellow background Pointing aside worried and nervous with both hands, concer

Rio's famous parade is cancelled for Covid, but what about Brazil's bond carnival?

Sad news from Brazil this week as the rapidly spreading Omicron Covid-19 variant caused authorities in Rio de Janeiro to cancel the world-famous street carnival for the second year in a row. But the fate of the promised carnival of bond issuance from Brazil remains in the balance.

Thursday showed, at least, that there’s cash there if Brazilian borrowers want it.

In the fourth quarter, JBS had ploughed a lone furrow as the only international issuer from the country, as Brazilian credit sold off across the board on the back of concerns over the country’s fiscal trajectory. But the start of the year was always likely to bring some action.

Indeed, even if we disregard the broad expectations of rising rates that may cause issuers to frontload funding, history shows that Brazilians like to get funding out the way long before elections. And a particularly polarising vote for Brazil’s next leader will take place in October.

Potential debutant Açu Petróleo had already announced investor calls on Monday. Banco do Brasil — with the first public social bond from a non-supranational LatAm bank — and media company Globo, trying out the SLB format for the first time, then took the plunge on Thursday.

Thursday morning in EM bond markets was a daunting place after Fed minutes the day before had hyped up rate hike concerns, but the two deals went… well, pretty smoothly actually. The bookrunners’ verdict was a 5bp-10bp new issue premium for Banco do Brasil’s seven year, and around 12.5bp for Globo’s 10 year SLB, and investors estimated similar concessions.

Yet were they the blow-out trades that will blast open the floodgates? Possibly not. As we reported, neither sell or buyside expects investors to pile into Brazilian paper at any price. Apart from the generally tricky macro outlook, the lingering fiscal concerns, and the election worries, investors know there is a queue of Brazilian borrowers with funding needs, and they therefore have the luxury of being picky.

As one UK investor said after Globo tightened inside his expectations, leading him to pull his order: “I’m not going to lose any sleep over it […] there’ll be plenty more deals on the way.”

There is talk of up to 12 Brazilian deals in January alone. How many of them materialise is likely to depend on the issuers themselves. Those wistfully longing for September levels, before the Q4 repricing and rates-induced volatility, are likely to end up disappointed. They may end up turning to the bank market or domestic bonds. But expect at least some treasurers to take a more pragmatic approach — especially if this week’s deals trade well.

Chileans party on in Switzerland

Chileans showed no such reluctance to fund themselves around elections last year — the sovereign even issued in December between the first and second round of the presidential vote. Nowhere felt the Chileans’ newfound sense of adventure more than Switzerland, where six FIG issuers from country issued between June and October.

By the end of that particular binge, there were some signs of fatigue. And Chile’s election ended up going the way of a left-wing candidate that some in financial markets deeply fear. So BCI’s return to Swiss francs this week was one to watch.

A combination of the fresh Alpine January air and BCI offering the Swiss something novel — a Chilean green bond — helped the bank to a bigger size (Sfr200m) than any of its compatriots managed in the second half of last year. Moreover, the new deal came flat to the curve.

Before all that, no prizes for guessing who had re-opened the LatAm new issue market at the first possible opportunity on Tuesday. Mexico, generously testing the waters for everyone else as is custom, printed $4.1bn of 12 and 30 year bonds with new issue concessions estimated between 10bp-15bp — probably just the right level for an uncertain market. After existing bondholders switched into the new notes, the size of the deal reached a healthy $5.8bn.

Finally, if you haven’t already, be sure you peruse our 2022 Outlook features published in December. There’s the write-up of our LatAm DCM head survey, a look at what’s behind last year’s bookrunner league tables, and our annual EM bond deals of the year awards. Well done to Braskem Idesa and Belize for their standout trades.

Have a great weekend, and 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 and feel free to pass it on to colleagues and contacts.

The best of this week’s LatAm bond coverage:

From GlobalCapital’s End of Year Review & Outlook

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