Latin America: Concerns about the US hang over fresh DCM
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Latin America: Concerns about the US hang over fresh DCM

No rush to fund at outset of 2013; Strong expectations of later pick-up

Latin America’s debt capital markets are showing weaker signs of activity at the start of this year than the last because of concerns about the fiscal cliff in the US and a high volume of pre-funding last year, meaning that sovereigns and corporates are in no hurry to tap the markets yet.

"In terms of volume, the start of this year is down on last," says Katia Bouazza, co-head of global capital markets for the Americas at HSBC Securities. "Typically, the start of the year is when sovereigns and frequent issuers line up to tap the markets. We are not seeing that to the same degree this year.

According to Dealogic, for the year to January 22 there was a total of $6.53 billion of international issuance out of Latin America (with 13 separate transactions) against a total of $11.98 billion for the same period last year (12 deals). So far this year, most of the international deal activity is coming out of Brazil, with five transactions valued at $2.78 billion. It is followed by Mexico, with one deal valued at $1.64 billion.

For the whole of last year, total international activity amounted to a record $91.1 billion (with 146 separate deals) against $72.5 billion in 2011 (114 deals), according to Dealogic. Brazil was the most important international issuer last year, with 50.9% of the overall LatAm market: total deal volume amounted to $46.35 billion (64 deals). It was followed by Mexico, with a 27.9% share at $25.38 billion (35 deals). During 2011, Brazil also came in at number one, with volume at $36.9 billion (55 deals) followed by Mexico at $17.35 billion (22 deals). A busy year

"Last year was a very busy year, especially the fourth quarter," says Bouazza. "There was a lot of pre-funding because of the favourable interest rates, and sovereigns and corporates did not feel an urgent need to issue at the start of the year. There was also considerable uncertainty about the US’s fiscal cliff and the impact that could have on markets.

"However, towards the end of January, we started to see renewed interest by issuers and investors alike. Markets are wide open. The fiscal cliff was averted and the European macroeconomic environment seems more stable, so I think we will start to see more and more issuers come to the market that decided not to bolt out of the gates at the start of the year."

Katia Bouazza, co-head of global capital markets for the Americas at HSBC Securities
Katia Bouazza, co-head of global capital markets for the Americas at HSBC Securities

At the start of this year, the most important sector for international issuance was finance, with five deals valued at $2.28 billion, followed by government/sovereign, with two deals valued at $2.14 billion. It was followed by food and beverage, with three deals valued at $1.5 billion, and auto/truck, with one deal valued at $300 million. Overall, last year, the main sector for corporate issuance was also finance, with total volume of $34.63 billion (75 deals), followed by oil and gas, with $19.9 billion (13 deals), and government/sovereign, with $17.9 billion (17 transactions).

Last year, Mexico was the biggest sovereign issuer, with three deals valued at $4.96 billion, followed by Brazil, with three transactions valued at $3.95 billion. During 2011, Venezuela was the most important sovereign issuer, with $7.05 billion (two deals), but it was not among even the top-nine sovereign issuers last year.

According to Dealogic’s advisory rankings, JPMorgan has been the lead bookrunner this year so far, with three deals valued at $1.5 billion, followed by Barclays, with one deal valued at $822 million, and Citi, with two deals valued at $648 million. Overall for Latin America, Citi was the lead bookrunner for international issuance out of LatAm last year, with 51 deals valued at $13.79 billion, followed by HSBC, with 55 deals valued at $13.58 billion.

In terms of international and local issuance just by the Brazilian sovereign and corporates last year, Itaú BBA was the top-ranked bookrunner at $10.38 billion, with 63 deals, followed by Banco do Brasil at $7.3 billion, with 34 transactions. Experts say that one of the most important trends in the Brazilian market during the past couple of years has been the emergence of the domestic banks as the most important bookrunners.

Last year, one of the main themes was the growing investor appetite for low-tier, smaller and higher-yielding names.

"Investors have started to feel more comfortable about looking down the credit chain," says Bouazza. "Even high-yield names have improving financial stories behind them and that is attracting investors to them. Infrastructure and project bonds are picking up a great deal of momentum, too. Previously, this sector was geared towards the bank-loan market, but corporates participating in it are more and more turning towards the bond markets."

She adds that the development of the debt capital markets in Latin America is not only characterized by the higher volume of deals but also by the increasing sophistication of the securities being issued. "For example, the project bond market originally focused around US dollar issuance but we are now seeing that type of bond issued in local currencies."

Latin American corporates are also issuing in other global currencies, which, until the past two years, had been the preserve of Latin American sovereigns. For example, Corporación Andina de Fomento issued in Swiss francs and Hong Kong dollars; Pemex has issued an Australian dollar bond; and Corporación Andina de Fomento and América Móvil have offered a renminbi bond offshore.

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