Indian summer for LatAm debt markets?
There has been a steady increase in international Latin American debt issuance recently. But is this masking a trend towards local-currency issuance, specifically in local markets?
The volume of deals from Latin American issuers in the international debt capital markets – almost all dollar-denominated – has spiked in the past three years. In 2012 the $100 billion threshold was broken, after reaching more than $90 billion in each of the preceding two years. International DCM bankers working in the region have never had it so good. Deals from nearly all the countries in the region, from all parts of the credit spectrum – for all tenors and largely all structures – have attracted big international investor demand. The market norm now appears to be orders of at least three times book. Bookrunners have used this unprecedented liquidity and demand for Latin American credits to lower yields and compress spreads. Then the bankers get on the road again, roadshowing the latest cost of financing available to the region’s corporates: "Get in on this," they say. "Pre-fund; diversify, lengthen and cheapen your cost of funds."
But even as the bankers today remain busy in the midst of their shuttle negotiations, and even as the pipeline is reported to remain strong, some market observers are questioning the sustainability of these recent record volumes. Are we are seeing, they ask, a market that is growing and will continue to do so? Or are we seeing an Indian summer when the heat in the market is being caused by record low US interest rates, masking the underlying real story: that of the growth in the domestic capital markets?
At some point, surely, the US Federal Reserve will begin to increase interest rates, argue proponents of the hypothesis that the future of Latin America’s capital markets is domestic.