Latam Capital Markets: Bond market turns to plan B

"Several issuers are getting a bank deal done quietly," says Chris Gilfond, joint head of Latin American debt at Citi. "People are also staying local and/or regional. For example, in Mexico and Peru the local debt capital markets business has been doing very well."

Michael Schoen, head of debt capital markets for Latin America at Credit Suisse, says: "There’s no simple trend. Each company is muddling through this in their own way. Some are just waiting because they can, others are changing and slowing their growth plans and then some are looking locally."

Gilfond argues that, ironically, the development and maturation of the local market exacerbated the international markets slowdown in Latin American countries this year: "There are more viable options locally and so the smaller issuers don’t even try and brave the storm and put themselves through a potentially painful international deal," he says.

Telemar was a good example of this pain. On September 10 the telecoms company pulled its planned $1.5 billion bond offering. Citi, Santander, Banco do Brasil, Bradesco and Itaú were leading the deal: "If we had tried to price this deal a week earlier it would have worked, but given how the markets broke down, it wasn’t the right time to do a deal," says Gilfond.

In 2008, the international bond market has been essentially impenetrable for high-yield Latin corporates. Only a handful of big names have managed to bring deals to market with more than 70% of total volume of deals to date coming in May. A notable exception was the $750 million bond from Petrobras in January. Initially it was a precursor bond to another deal that was meant to come in February but got pulled when the price exceeded the level the oil company was willing to pay. Despite Petrobras’s great name, even some of the investment-grade companies were failing to complete their deals.

Now, even as the pressure mounts on the plan B route, Latin companies generally look as if they will see the year out in moderate shape. "I think that, with a few exceptions, the Latin CFO has had a decidedly less stressful 18 months compared with CFOs in many other markets," says Gilfond. "The syndicated loan market has repriced but is still available for Latin American borrowers as are the region’s domestic capital markets... and for those that can’t use any of these options, the amount of refinancing due this year in Latin America is relatively small – the companies can sit tight and wait if they have to."

In contrast, Russian corporates are not only dealing with political uncertainty, but they also need to raise in excess of $30 billion for refinancing before the end of the year. Vallimarescu says: "It’s hard to have an opinion on what is going to happen because none of us has lived through this kind of crisis – however, it does appear that Latin American economies and corporates are, by and large, still in fundamentally good shape."