Latin America: Equity dislocation as a fixed-income driver
The fundamental dislocation of the region’s equity markets may actually drive DCM issuance in the coming year as a much-stalled pipeline of equity deals turns to M&A in frustration – and DCM deals will be printed to finance this predicted wave.
In Brazil, in particular, there is growing exasperation at the inability of companies to finance growth through issuing equity, and bankers report greater interest in this area, with private equity becoming an important source of capital for corporate growth.
International equity investors have lost a lot of money as stocks have fallen, compounded by currency devaluations. In dollar terms, Latin American equities have performed particularly badly.
"There are two types of international investors that look at Latin America," says Enrique Corredor, head of ex Brazil equity capital markets at BTG Pactual in New York. "Those who ‘have’ to own Latin America and those who are global. The guys that have to invest in the region are facing redemptions, so they don’t have the firepower to buy new issuances, and the few that do have some liquidity prefer to find value in the secondary market.
"Meanwhile, the global investors are, for the most part, staying away from Latin America, seeing value in other parts of the world, in the US and Europe in particular. These investors have to mark their results in dollars and the currencies [in Latin America] give them a double hit at the moment."
Facundo Vázquez, head of ECM at Itaú BBA in New York, says that political uncertainties (with elections this year in Colombia and Brazil and a new government in Chile) have combined with the falls in the region’s currencies and stock prices to almost paralyse the market.