Colombian telecoms company ColTel sent a much needed positive signal about borrowing conditions for Latin American companies earlier this week, raising $500m of B+/B rated hybrid bonds. The deal is welcome evidence that demand for paper remains strong despite worryingly low new issue volumes from the region’s corporates this year.
Zero cross-border bond issuance so far in 2015 out of Brazil, the largest provider of corporate issuers in the region, has depressed non-sovereign new issue volumes in Latin America to just $10.5bn, according to Dealogic.
In Q1 2014, there was $32.9bn of corporate international bond issuance from Latin American corporates — nearly three times as much.
“We’ve been shocked at how low corporate new issuance has been from Latin America,” said Jennifer Gorgoll, portfolio manager for EM corporate bonds at Neuberger Berman. “The corruption scandal is obviously putting a dampener on Brazil, but it’s not the only area where volumes are down.”
Indeed, only around $18bn of Q1 2014’s corporate bond issuance was from Brazil, meaning that even excluding the region’s largest economy from last year’s calculations, this year’s LatAm corporate bond volumes are still $4bn behind 2014’s year-to-date total.
Debt capital markets bankers covering the region are hopeful of a turnaround, however.
“I think slowly mine and my competitors’ pipelines are filling up for the post-Easter window,” said one DCM banker in New York.
This year began with huge uncertainty engulfing EM economies, meaning companies were reluctant to issue, he said. Once into February, these firms had to wait for full year financial results to be able to issue, and now most are likely to hold off until after Easter.
In addition, corporates spent the last two years carrying out heavy prefunding in anticipation of a rise in interest rates in the US, meaning financing needs are lower.
In contrast, sovereign supply is outstripping corporate volumes for the first time in years. Colombia’s $1bn 30 year issue on Tuesday took LatAm sovereign borrowing to $14.1bn from nine deals so far this year.
Bond bankers say that sensitivity to liquidity means that larger, more frequently traded notes such as sovereign bonds are an easier sell than corporate issuances.
ColTel’s trade was far from a blowout, with an order book of just $1.4bn for a $500m deal. It also offered a hefty pick-up of 300bp to the company’s senior debt.
Nevertheless, another LatAm DCM banker said that any successful issuance with such a risky structure was a sign that appetite was good.