Borrowers: Bring on the corporates
US interest rate rises are an ever-present threat to Latin American bonds, but market bulls reckon such rises won't be as destructive as they were in 1994. Sovereign borrowing is easing, privatization is under way, rating upgrades of some corporates have left more room for lesser names and securitization is taking off. So corporates look likely to capture a much bigger market share. Michael Marray reports
Latin American corporate bond issuance is on the upturn, with a long list of first-time issuers looking towards international capital markets for funding. Bankers expect that over the next 18 months corporate credits will come to constitute a bigger proportion of overall Latin bond issuance, moving closer in market share to the sovereign credits and financial institutions that are now dominant.
There are several reasons for the new emphasis on corporate borrowers. Many Latin American companies are underleveraged and can afford to take on new debt as they pursue expansion strategies. In addition, the wave of privatization across the region is creating new private-sector names that will soon be coming to market. Then there is the fact that market access has been established - the sovereign borrowers, banks and blue-chip corporates that have come to market thus far have helped establish Latin paper as an asset class, paving the way for the next generation of corporate issuers to tap into the same pool of investors.
Those investors bought Latin bonds in record amounts during 1996, when new issues worth more than $50 billion came to market, more than double the previous record set in 1993.