Oil and Gas

Banks navigate Latin America's turmoil, protect lending relationships

NEW YORK, Nov 14 (LPC) - Political crises, weak economic growth and social unrest have heightened investor anxiety in Latin America in recent months, but banks, keen on maintaining a strong presence in the region, are staying put.

Investors’ fickle behavior has triggered shifts in the equity and bond markets, but corporate lending is stable. Maintaining such deep-rooted relationships with borrowers has proven an integral part of lenders’ business that banks are staying the course despite unrest throughout the region.

“All year long and quite recently with turbulence in parts of Latin America (and around the world), it’s incredible that even with sustained volatility, our markets are fundamentally open for business,” said Geoffrey Hunter, managing director and head of emerging markets at Citigroup. “People are learning how to navigate around these things.”

In 2018, investors keenly monitored the impacts of newly-elected presidents in Latin America’s two largest economies, Brazil and Mexico. Stocks were volatile as the Brazilian election approached, soaring after pro-business Jair Bolsonaro was elected. Mexico’s veteran leftist Andrés Manuel López Obrador’s decision to scrap a US$13bn plan to build a new international airport, meanwhile, led to sharp falls in the currency and stock market.

So far this year, Argentina’s election has seen the country swing back to the populist Peronist party, while government woes in Peru have added to regional instability, alongside anti-government protests in Chile, Bolivia and Ecuador.

“You are there because you have a commitment to the region, to the country, and to maintaining relationships with these corporate clients,” said a senior loan banker. “You’re with them through various hiccups and whatever might be going on and kind of take a longer-term view as to why you’re investing in them.”

In July, the International Monetary Fund cut its expectations for Latin America’s economic growth in 2019 by more than half to 0.6%.

The lending market, meanwhile, has weathered the storm. Latin American syndicated loan issuance at the end of the third quarter of 2019 was US$41bn, already the same level recorded through 2018, according to Refinitiv LPC.

“We take a wait-and-see approach, and see if there’s a way to mitigate, because once you pull out of a corporate, they’ll remember that and it’s very hard to make it up again, especially if we have a presence in that country,” the senior banker said.


Mergers and acquisitions is typically the first victim of geopolitical market jitters. While M&A activity has slowed globally, Latin America has held steady with the Americas fueling 71% of the market share of M&A in 2019 through the third quarter.

Earlier this month, Brazilian oil company Petroleo Brasileiro, known as Petrobras, sold its 50% stake in Belem Bioenergia Brasil to Galp Bioenergy, and the company in September also shed its natural gas distribution business in Uruguay, among other asset sales throughout the year.

In October, US-headquartered energy infrastructure company Sempra Energy agreed to sell its Peruvian businesses for roughly US$3.6bn to China Yangtze Power.

“Brazil was healthy and Chile, Colombia and Peru were kind of the three other jurisdictions where we’ve seen M&A happen,” said a New York-based attorney focused on M&A in the Americas. “Mexico traditionally used to be also a very strong market, but with the political situation, the M&A activity hasn’t been as strong as before.”

Despite the changes in the political landscape, Mexico’s bank market remains robust. Mexican borrowers made up more than half the total syndicated loan issuance through the third quarter of 2019 with US$22.7bn, the highest on record for any country in the region during the same period. In 2018, total volume from Mexico was US$16.1bn, according to data from Refinitiv.

“It’s a huge economy and Mexicans are used to some level of political uncertainty, so Mexico continues,” said another New York-based attorney focused on capital markets in the Americas.

Oil and gas and utilities made up more than half of Latin America’s syndicated loan issuance through the third quarter of 2019. In June, for example, Mexico’s state oil company Pemex allocated a US$8bn syndicated loan among 23 banks, the largest lending transaction to date this year in the region.

Mining-focused economies, such as Peru and Chile, also drove volumes, with project finance-related syndicated loans totaling US$11.6bn in Latin America through September. This was more than the entirety of 2018.

Chile, South America’s wealthiest nation per capita and Latin America’s highest-rated among credit agencies, is experiencing massive social unrest. Protests against inequality and corruption have raised eyebrows about Chile’s economic and political outlook. And while the unrest served as a shock, lenders in the country are not getting off the rollercoaster just yet.

Latin America is growing ever-more competitive as new, cash-rich market participants, such as private equity firms and Chinese foreign direct investment, are keen to deploy capital throughout a region, which still offers a healthier return than several of its peers.

“Banks that previously had only gone south of the Rio Grande on an offsite or something are now in the region. These are emerging, growing markets. There are not a lot of growth opportunities globally, and so people very much want to be there to create market share. If you’re there in the long game and have the stomach for it, it’s worth it,” the capital markets attorney said. (Reporting by Daniela Guzmán. Editing by Michelle Sierra and Aaron Weinman.)