LATAM Perpetual bonds: Too much of a good thing?
Bankers and investors question the slew of Latin American perp issues.
The Latin American perpetual bond craze shows no signs of abating, with several borrowers issuing deals at the end of January.
Cosan, a Brazilian sugar and alcohol manufacturer, launched a $350 million perpetual non-call five-year at the end of last month. Another Brazilian company, Vicunha, a textile and steel group, is also working on a perpetual deal – a $475 million non-call five. This transaction was originally scheduled to be launched last year but was postponed after interest sagged following last October’s market correction.
These deals follow a hugely successful $500 million perpetual non-call five-year bond from Banco do Brasil, which was priced last month. The deal attracted more than $4 billion-worth of orders, allowing the lead manager to raise the transaction’s size from its original $300 million. Pricing was also tightened on the back of the strong demand as the deal demonstrated that investor appetite for this type of structure remains big. The bond carried a record low rate of 7.95%. The deal counts as upper tier 2 capital until new Brazilian regulations are approved and it moves into the tier 1 category.
Latin American perpetual bonds are targeted mostly at yield-hungry Asian retail investors, usually through private banks that buy the bonds directly.