Latin America

The downgrade of Brazil by Standard & Poor’s into sub-investment grade territory on Wednesday had been seen as inevitable for nearly two months. But when it came, the downgrade was as brutal as it could have been.

The two Fibras — or Mexican Reits (real estate investment trusts) — lining up to issue are perfect candidates for the volatile conditions in the Latin American market, said LatAm bond bankers.

LatAm syndicate bankers said Codelco had carried out a perfectly executed trade on Wednesday with its new 10 year, but some highlighted that the re-offer yield should be a lesson to borrowers about the dangers of waiting to issue.

América Móvil on Thursday issued its second exchangeable bond into stock of Koninklijke KPN in just four months, raising €750m after a €3bn issue in May. But this deal, unlike the earlier, was a mandatorily exchangeable structure.

Brazil’s downgrade to junk will come as little surprise to market observers, given the increasingly bearish sentiment seen in Brazilian sovereign bonds.

Chilean government-owned copper miner Codelco raised $2bn of 10 year notes on Wednesday in a deal that provoked debate about the size of the new issue premium but was unanimously considered a positive for the LatAm market.

Standard & Poor’s put the Brazilian sovereign into sub-investment grade territory late on Wednesday in a move that came sooner than most had expected but had already been accepted as inevitable.

General Shopping Brasil has exercised its right to defer the payment of interest on its $150m 12% perpetual subordinated notes, meeting the expectations of credit analysts.

Bond prices in the secondary market, alongside recent analyst reports, suggest a belief that Venezuela will meet its immediate debt obligations. But the prospects for next year appear murkier.

Two Fibras — the Mexican version of the US real estate investment trusts (Reits) — are considering issuing dollar bonds in September, said bankers, finally providing some visible potential supply to LatAm’s bare pipeline.

Mexican real estate investment trust — or REIT — Fibra Terrafina could become the first borrower from Latin America to bring much-needed bond supply in September as it turns to international markets for the first time.

After “particularly ugly” second quarter results, according to one bank’s credit analyst, Moody’s confirmed on Monday that Mexican construction group Empresas ICA’s turnaround was short-lived by placing its B2 rating on negative outlook.