LatAm Bonds

Bond market participants in Latin America are gradually accepting that Zoom video calls will become a permanent feature of their job. However, in this particularly travel-intensive segment of capital markets, when it comes to selling a product, neither issuers nor bankers appear willing to cut down visits to clients in a region where personal trust is arguably more important than anywhere else.

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.

Emerging market bonds are trying to catch the same bid that has gripped investment grade markets, particularly in the US. Now, Latin America borrowers are scavenging once more for chances to print new issues.

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.

Mexico petrochemicals company Grupo Idesa on Monday issued a supplement to the offering memorandum on a distressed bond swap as it attempts to avoid default by persuading bondholders to push out the maturity on a $300m bond due in December.

Emerging markets face at least $2.5tr of financing needs and do not possess the resources to fund themselves, said the IMF on Friday. But with bond markets continuing to improve and multilateral development banks increasing their firepower, prospects for EM funding are at least looking more promising than a week ago.

For years, the best sovereign issuers in the emerging markets would boast that their latest bond deal showed how much the mystical “international financial community” supported the current administration’s macroeconomic management. And EM investors would pretend that buying the stuff was to have the map to Treasure Island.

Panama acted swiftly to capture crucial funds on Thursday, jumping on an improved market to raise $2.5bn of debt and giving a glimmer of hope to emerging market countries as fears were beginning to rise of a devastating funding squeeze for the developing nations just when they most need finance.

Distressed South American sovereign Ecuador faces a tall task to renegotiate its debt payment schedule in time to avoid a hard default, said market participants, after it delayed around $200m of coupons this week, taking advantage of a 30 day grace period.

After its long-awaited debt sustainability analysis disappointed many investors and analysts, Argentina’s desire to solve its debt restructuring quickly may buckle under the pressure of its attempts to mitigate the impact of Covid-19.

Two days after saying it would take advantage of grace periods to delay coupon payments, Ecuador confirmed that it would begin negotiations with commercial and bilateral creditors around what it calls a “consensual reprofiling” of its outstanding liabilities.

Latin America bonds may not be immune to the generalised improvement in tone in credit markets this week, but that secondary markets remains dysfunctional and a return to primary market action could be some way away.