Companies cash in on Latin economic resilience
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Emerging Markets

Companies cash in on Latin economic resilience

The relative strength of the Latin American economy has helped spur successful corporate debt issuance

The resilience of the Latin American economy in the face of global headwinds has unleashed investor demand for regional borrowers across the credit spectrum, according to analysts.

The thaw in the primary market for corporate borrowers since January combined with the global emerging market rally has seen a broad array of new deals by issuer type, rating, size, liquidity and pricing.

The $37.5 billion of new issuance year-to-date is at the highest level on record, in nominal terms, according to Dealogic, a data provider.

An array of major companies have launched new debt issues, propelled by the cash rich US-based money managers hungry for yield.

This week Brazilian financial issuance dominated the Latin American primary market landscape. On Monday, Itau Unibanco highlighted market hospitality for subordinated bank debt issuance after it launched a tightly priced $500 million issue of its 2021 bond to yield 5.65%, thanks to $4.5 billon of orders.

On Thursday, Banco BMG prized open the doors for mid-sized and lower-rated Brazilian banks with a $150 million five-year deal to yield 9.75%, buoyed by the spirited return of a global investor base.

Latin America’s $37 billion of new issuance year-to-date is the highest level on record, in nominal terms, according to Dealogic, a data provider.

“Despite eurozone risks, oil price risks and China growth fears, the Latin American market has remained buoyant,” said Jeff Williams, Latin American debt strategist at Citigroup.

Investors are dancing to the Brazilian beat, driven by the strong balance sheets of domestic borrowers that are at a more attractive stage in the economic cycle than many of their developed world counterparts.

“In Brazil, investors are looking at a broad spectrum of issuers,” said Pedro Leite Da Costa, managing director at Goldman Sachs. In particular improved liquidity conditions have boosted the prospects for relatively small transactions, he said.

Walter Molano, head of research at BCP Securities, said the modest supply of high-grade fixed-income deals in Europe had created a “vacuum” in the global new issuance market that had increased demand for high-rated and high-yield Brazilian issuance.

Market access for lower-rated Latin American borrowers contrasted with investors’ wariness toward emerging European issuers, he told Emerging Markets, citing weaker eurozone domestic growth and liquidity prospects.

Looking ahead, investor appetite for ambitious deals from Latin American borrowers - from lower-rated corporates in cyclical sectors, perpetual bonds to long dated notes with limited new issue concessions - should hold firm as long as the eurozone crisis remains relatively contained, market players said.

But a global shock would trigger a jump in credit spreads and new issue premiums for prospective emerging markets borrowers that would limit external bond supply.

Over the year to the close of business on Thursday, Latin American international bond sales - excluding securitizations and money market-related debt capital markets activity - represented a third of all emerging market deals by value, with 48 deals.

That amounts to $37.5 billion, compared with 39 deals worth $27.4 billion during the corresponding period of last year, according to Dealogic.

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