NEW YORK, Aug 30 (IFR) - At least eight Latin American
issuers are set to test appetite for credits out of the region
in comings weeks after a two-week drought in the cross border
A lacklustre response to deals that emerged mid month and a
broader buy-side retreat from emerging markets has bankers
wondering if demand will be able to match supply as investors
continue to fret about US Treasury volatility in the face of
improving economic data.
Several borrowers are drawing up plans to come as soon as
next week ahead of the Rosh Hashanah holiday late Wednesday and
key US unemployment data on Friday. The following week, issuers
will have to tip toe around the FOMC meeting but will likely try
their luck then as well.
"We have several borrowers preparing to come in the first
two weeks (of September)," said a syndicate official. "They will
get done but with a (higher) concession. This is a market for
sovereigns, quasi sovereigns and well-known names, not one for
credit stories that are new."
Indeed, market turbulence is unlikely to fade going into the
end of the year as events in Syria, rate volatility and concerns
over the US debt ceiling come to fore.
The question on most bankers' minds is whether institutional
investors will fill the void left over by retreating retail
The case for investing in EM has certainly becoming less
compelling as US rates look set to go higher, despite bargain
basement prices among certain LatAm credits. This comes after EM
bond funds saw accelerated outflows last week to USD2.013bn, up
from USD732m during the prior period, according to ING.
"There is no way around the fact that we have seen decent
outflows," said a syndicate official. "Given more supply and
arguably less cash, investors can choose to be selective."
This has been reflected in disappointing summer price
action. Not only have recently printed deals performed poorly,
but LatAm credits have largely weakened with each spike in
Treasury yields but failed to recover on rallies.
That said, this was mostly due to investors throwing in the
towel in local currency funds, which saw USD1.146bn head for the
exits. Hard currency funds, on the other hand, saw USD454m leave
the asset class versus USD732m the week before, ING said.
The other caveat to the overarching negativity is that much
of last week's retreat can be attributed to movements among
retail accounts, which, at the moment, have dominated price
action in an illiquid market.
Institutional accounts have largely remained sidelined
during the summer holidays, and have to yet show their cards.
Bankers think real-money may have a different view on the
market and will start putting money to work in EM come
"A lot of weight is being put on retail fund flows, but
institutional investors still have cash," said a syndicate
manager. "I am cautiously optimistic."
Names in the pipeline include Colombian oil company
Ecopetrol, Brazilian aircraft manufacturer Embraer, Mexican oil
services name Grupo R, Chilean bottler Embotelladora Andina,
Peruvian miner Buenaventura, and state-own financial institution
Caixa Economica. Chilean oil company ENAP is also out with an
RFP that could result in a bond issue.
Further down the credit spectrum, beef credit Marfrig and
Barbados are also contemplating market forays. Sovereign also
expected to tap this year include Brazil and Colombia.