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Capital Markets

LatAm DCM bankers wind down dismal 2015

Meek year-end further weakens annual total; euro deal resurgence brings some cheer.

This year is on course for the lowest international DCM issuance from Latin America since the 2008/2009 crisis. With the lowest year-to-date run-rate since 2008, the chances of an end-of-year spike boosting the annual total are slim. Issuance in 2015 stands at $70.3 billion, versus $124.3 billion in 2014.

In November, lead managers Bank of America Merrill Lynch and JPMorgan pulled one of the few existing international dollar deals, from Chilean financial services provider Tanner, citing volatile markets. 

A growing expectation of an increase in US interest rates in December was one of the main reasons why investors were said to be more risk averse and less inclined to buy EM deals.

Fibra Terrafina jumped through a market window earlier in November to print its debut cross-border bond, selling $425 million of seven-year, 5.25% notes. The Baa3/BBB- real estate investment trust was priced at 99.486 to yield 5.339%, or 337.5bp over Treasuries. 


Marcelo Delmar,
BNP Paribas

Lead managers Barclays and Citi tightened pricing from initial price thoughts in the area of 350bp, as well as increasing the deal size from $400 million.  It was the first dollar-denominated deal from a non-sovereign, quasi-sovereign or development bank since August. 

“We had a good month in terms of secondary performance in October, driven by strong technicals with coupon and amortizations surpassing issuance volumes, which allowed some issuers to come to market,” says Lisandro Miguens, head of Latin America debt capital markets at JPMorgan in New York. 

“We saw some profit-taking earlier in the month on concerns the Federal Reserve might start increasing interest rates in December.”


However, the euro market offered a cause for some optimism. Dealogic says euro-denominated deals represent 19% of total volumes in 2015, up from 13% for 2014 and just 4% in 2012. This year, euro-denominated deals have become more attractive to those issuers that can tap the market. 

Peru returned with its first euro issue in 10 years, selling a €1.1 billion deal. The sovereign sold a 2.75% at 99.998 to yield 2.751%, a relatively tight new issue premium of around 10bp if using outstanding Mexican bonds as a benchmark. The lead managers on the deal, rated A3/BBB+/BBB+, were BBVA, BNP Paribas and JPMorgan. 

Marcelo Delmar, BNP Paribas’ head of Latin America DCM in New York, says the pricing exceeded expectations. “The euro market offers very good yields and the possibility of achieving good tenors – this transaction’s tenor was 10.5 years and that sits very well from the maturity profile,” he says. 

“So from that perspective, as well as reaching a lot of accounts that had never bought Peru before, this was a very successful transaction.”

latam dcm 200

Delmar does not think the sovereign swapped the transaction to dollars, which would have undermined the low yield achieved in the euro by adding in an expensive hedge. He also says the transaction achieved pricing tension by attracting both EM and investment grade investors.

Miguens says that for those borrowers that can issue euro-denominated transactions the strategy is likely to continue to be attractive into 2016 as the European central bank is set to remain in easing mode while the Fed is expected to tighten. “I think the euro market is going to become, as it was in the past, a good source of financing for large, Latin American investment grade companies and sovereigns,” says Miguens. 

“A lot of these companies have trade relations in Europe and so they are happy to keep the proceeds in euros, and don’t need to swap back into dollars, and that’s why we have seen some of these issuers pulling the trigger. Some marquee, non-investment grade names will also be able to issue in euros but they will remain the exception.”

Lisandro Miguens-160x186

Lisandro Miguens,

However, some issuers will swap proceeds back into dollars. On November 3, development bank CAF issued a 1% €750 million 2020 transaction.  Despite the low yield, the book reached €1.2 billion and lead managers BAML, Crédit Agricole, Credit Suisse and HSBC increased the deal size from €500 million to €750 million, with the issuer believed to have swapped €500 million into dollars. 


As Euromoney went to press, the pipeline of deals was reported to be weak. Beyond a possible post-Argentine election issue from Banco Hipotecario and led by BAML and Itaú, to take advantage of a possible jump in investor appetite for Argentine credits, there was little expectation of deal flow.

“I don’t see a lot of issuers looking at the market very closely,” says one DCM banker. “I was trying to push some to take advantage of the window at the end of October and they were lukewarm. Unless a very strong window materializes in the next couple of weeks, then I think we are mostly done for the year. 

"This has been a very long year for everybody.”

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