NEW YORK, March 3 (IFR) - LatAm DCM bankers are bracing for
a rebound in issuance after the region's slowest February in the
dollar market since 2008, which saw just one cross-border issue
placed all month.
Lower US Treasury yields and a stronger tone in emerging
markets over the last few weeks should bring several high-grade
borrowers out of the woodwork despite new risks such as Ukraine.
Issuers were essentially sidelined last month, either
because they were sated by January's surge of issuance or scared
off by the subsequent EM sell-off.
But activity is set to spike in March as bankers hurry to
take advantage of the much-improved tone in the secondary
markets now that several companies have reported fresh numbers.
And there is certainly no lack of companies that have either
mandated or already met with investors, including Mexican bank
BBVA Bancomer, consumer finance company Credito Real, mobile
infrastructure provider Continental Towers, sugar company
Ingenio Magdalena, Chilean wood products Masisa, Uruguay oil
company Ancap and Colombian pipeline company Ocensa.
The absence of supply has pushed secondary prices higher and
improved the technical backdrop, while shrinking Treasury yields
due to the Ukraine crisis have improved pricing prospects
further up the curve.
Demand for the primary should be healthy as it is often the
only place where investors can buy in size, as shrinking
inventories and poor liquidity in the secondaries means that
only small tickets are available.
"Treasury yields are very favorable for EM borrowers to
issue as long as possible," a senior syndicate official said
Friday. "If someone wanted to do a 30-year, now is the time. The
30-year Treasury is now at around 3.60% when a few weeks ago it
was near 4%."
While retail flows persist, bankers say, institutional
accounts have amassed cash during the recent drought and are
ready to put money to work.
That includes the insurance companies that supported a
mini-surge in 30-year bonds earlier this year.
Yet it is likely to be a different story for junk-rated
names, as investors take a broad-brush approach to a sector that
has been tainted by a number of defaults in recent months.
With no recent benchmarks to go by, though, the first movers
may find pricing proves a bit tricky - particularly if investors
seek higher new issue premiums to compensate for tighter
"You will still need to start with a new issue premium of
20bp-25bp range [even for well-known high-grade names], and they
will end up at 10-15bp," one senior syndicate official told IFR.
The start of Carnival in Brazil today means that few if any
borrowers are likely to emerge from the region's largest economy
for a few days.
But with the country's spreads finally catching up with
low-beta peers, Brazilian corporates and perhaps the sovereign
-- which just wrapped up investor meetings in Europe -- may take
advantage of the better tone to print before the World Cup and
presidential elections potentially complicate execution later in
Indeed, a jumbo trade from Brazil's Petrobras could boost
LatAm volume substantially in March should the oil company
decide to make its yearly multi-billion foray this month now
that it has released fourth-quarter earnings.
The response to its numbers last week was mixed at best, but
given the less pessimistic views about Brazil, Petrobras might
not see a better window, said some bankers.
Higher production in pre-salt fields and better Ebitda
figures were insufficient to reverse Petrobras's negative free
cash flow data as debt levels continue to climb, said an
Net debt rose by US$8bn to US$94.5bn during the quarter,
bringing net leverage to 3.2x for the year and breaching the
company's 2.5x target.
"Ebitda and sales are slightly better, but the cash burn
remains," said a banker. "Leverage of around 3.5x for an
investment-grade company is crazy."
If Petrobras can come to market, however, bankers are less
upbeat about high-yield issuance as headline risks weigh on the
The restructuring of Brazilian tycoon Eike Batista's oil and
gas company OGX, default concerns in the Brazilian sugar sector
and Friday's seizure by the Mexican government of oil services
company Oceanografia will only make the selling of higher
yielding credits that much more difficult.
Several sub-investment grade debut issuers are already heard
holding off, including Peruvian real estate credits Centenario
and Los Portales.
The latter was thought to have already mandated Bank of
America Merrill Lynch, BBVA and Santander for the business.
Those Peruvian names will no doubt be tainted by last year's
debacle in the Mexican housing market, despite coming from
different countries, say bankers.
"If you are a high-grade issue, it is about new issue
premiums and not about market access," said a banker.
"On the high-yield side, it is not that simple. They will
look at the credit before anything else and ask: is this a
credit I want to bother my time with?"
(Reporting by Paul Kilby; Editing by Marc Carnegie)