DCM: Mexico leads LatAm back to international markets
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DCM: Mexico leads LatAm back to international markets

Pemex surprised by level of demand; Banco do Brasil builds on América Móvil’s euro success

On July 11 the first dollar-denominated transaction from a Latin American issuer since May came to the international debt capital markets when Pemex sold a $3 billion deal in four tranches. The transaction – led by Barclays, Morgan Stanley and Santander – attracted $12 billion in orders and led to a reverse inquiry $500 million reopening of Pemex’s 6.5% 2041 bond.

"We were very surprised [by the level of demand]," says a banker who worked on the deal. "It was the first Latin American deal in six or seven weeks, and frankly the breadth and depth of demand was unexpected given the volatility in the past weeks. No one had even dipped their toe in the market for a very long time."

Investors shrugged off July’s protest against Pemex to snap up its recent bond
Investors shrugged off July’s protest against Pemex to snap up its recent bond

Pemex took advantage of comments by Federal Reserve chairman Ben Bernanke that were more dovish than other recent statements. The Baa1/BBB/BBB+ credit sold a $1 billion five-year, fixed-rate tranche that priced at 99.542 with a 3.5% coupon to yield 3.6% – US treasuries plus 220 basis points (against guidance of treasuries plus 225bp). The floating-rate note has a coupon of three-month Libor plus 202bp and priced at par. The banker said that he and Pemex had been surprised that the demand for the fixed-rate tranche was stronger than that for the floating-rate note and said that investors were attracted to the "current yield". Pemex also sold a fixed-rate 10-year tranche that priced at US treasuries plus 235bp (against guidance of 240bp).

Large base

"This deal says that there is still a very large investor base for these Latin American deals," says the banker. "Maybe the degree of investment shift has been exaggerated because that view has largely been driven by a view of fund flows, which reflect retail rather than institutional [appetite]. There still seems to be a lot of institutional money that needs to be reinvested. It also speaks to a preference to lower-beta credits – and Pemex is one of the premier, liquid names in the market."

Another Mexican issuer, América Móvil, followed three days later with an international deal denominated in euros and sterling. The sterling transaction closed smaller than expected (it printed £300 million – $459 million – rather than the target £500 million), but the €750 million tranche attracted €1.5 billion in orders. Credit Suisse and Santander managed the sterling tranche and the euro portion was managed by Credit Suisse and Citi.

The success of América Móvil’s euro tranche led Banco do Brasil finally to return to the euro market. The issuer had been committed to returning since 2011 and, pre-filed and with a series of European investor meetings completed in June, decided to go to the market the day before launch on July 18.

The book closed after just three hours, according to Daniel Maria, executive manager at Banco do Brasil. "We closed the book when the bank had attracted €2.2 billion [for its €700 million, upsized from €500 million] from about 280 orders. We adjusted the price without losing many orders and priced at a lower level to the initial 4% guidance."

The Baa1/BBB/BBB deal, led by Banco do Brasil, Bradesco, Deutsche Bank, HSBC, JPMorgan and Santander, priced to yield 3.875%. Maria says he calculates the new-issue premium to be 22 basis points, which was in line with his expectations before coming to market.

Maria says the bank is seeking to diversify investors rather than looking for simple currency diversification. "There is a large investor base in the euro area that doesn’t have the ability to add to their dollar-denominated assets. So this deal brings in investors that are not part of our investor base." The bank also has financing needs in euros and kept the majority of the deal proceeds in euros.

The bank has also done deals in yen, swiss francs and Australian dollars in recent years and remains watchful for other possibilities.

"The intention of the bank isn’t to do one transaction and disappear, so we will continue to monitor the markets, but we obviously can’t say when we are likely to return or with what currency." Maria also denies that Brazil’s recent bad press posed a strategic hurdle to pricing this transaction successfully.

"The investor meetings [in June] were very positive," he says. "And the execution of this deal speaks as a statement to the appeal of Brazil."


As Euromoney went to press, Chilean credit Transelec kept the Latin American re-entry on track. But is access limited to blue-chip names? "The market is normalizing," says the banker who worked on the Pemex transaction. "Over time you will see a move to a broader universe of investors. But I’m not sure it will become quite as varied as it was before Bernanke’s statements, and some of the marginal deals – some of the high-yield or the highly leveraged structures – may not feasible for quite some time."

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