Colombia

While emerging market bond investors are spending their days in the Covid-19 crisis battling with poor liquidity, cash calls from end investors, and even the odd new issue, debt relief has remained a threat, albeit only a vague one. But at policy level the topic is of growing importance, and what began as a matter for official institution creditors took a step closer to embroiling the private sector this week. Ross Lancaster, Phil Thornton and Oliver West report.

When Ecopetrol, which has been talking about bringing a bond for a long time, chose to do so last Friday, after an oil price crash in the middle of the coronavirus pandemic, it took the market aback. Fridays, after all, are not when any self-respecting Latin American bond issuer comes to the market. But there is nothing typical about Latin America’s primary markets these days.

Corporación Andina de Fomento (CAF), the South American development bank, could follow fellow Lat Am multilateral Cabei into bond markets after mandating for an SEC-registered US dollar deal.

When Ecopetrol, which has been talking about bringing a bond for an absolute age, chose to do so last Friday after an oil price crash and in the middle of the coronavirus pandemic, it took the market aback. Fridays after all, are not typically when any self-respecting Latin American bond issuer comes to the market. But there is nothing typical about Lat Am primary markets these days.

Debt capital markets bankers had been hoping for at least two years that Colombian oil company Ecopetrol could be persuaded to issue a bond. When the government-owned borrower finally opted to tap bond markets last week for the first time since 2016, it caught the eye by doing so with oil prices at historic lows, in the middle of the coronavirus pandemic and, unusually for a Lat Am issuer, on a Friday.

Two major rating agencies now have Colombia on the lowest rung of the investment grade ladder with a negative outlook after Fitch took action on the sovereign. Cries from former finance ministers that it was an inappropriate time for downgrades fell on deaf ears.

Latin American corporates from across the rating spectrum are taking a range of measures to protect their liquidity in the face of the Covid-19 slowdown, but analysts suggest several defaults are inevitable as the region is hit on several fronts.

Mauricio Cárdenas, Colombia’s finance minister in 2012-18, has told GlobalCapital that emerging market nations would struggle to raise the financing required to fund measures to treat the Covid-19 pandemic and consequent economic slump. “Difficult years are coming” for EM, warned the former official.

Colombia’s Ecopetrol became the first of Latin America’s big national oil companies to launch an action plan to combat the continued fall in oil prices as it looks to preserve cash.

Latin American governments looking to shore up their economies in the fact of the coronavirus pandemic generally have less room for fiscal stimulus than they did before the 2008 financial crisis, warned Fitch Ratings on Wednesday as the region’s bond markets plunged even further.

Colombia’s Ecopetrol became the first of Latin America’s major national oil companies to launch an action plan to combat the continued fall in oil prices as it looks to preserve cash.

Though Latin American bonds offered some consolation to investors on Friday, the relief is likely to be short-lived as the region buckles down to fully face the effects of the coronavirus pandemic.