With that sort of competition, no company wants to have to overcome a zip-code problem before it can start to compete. But until now CVRD has always had a certain Brazilian air to it. Sometimes, that’s an advantage: given how liquid Brazil’s banks are means that it can generally borrow money at razor-thin spreads. But more often it’s still a disadvantage when it comes to raising international capital.
Until now.
With its issuance in June of $1.9 billion in hybrid securities, CVRD has shown that Latin America’s largest companies – think Cemex, or América Móvil – are very much capable of transcending their nationalities.
For one thing, CVRD and its bankers – Citi and JPMorgan – decided to issue a mandatory convertible bond. You might remember mandatory convertibles from five years ago or more: they were briefly popular among technology companies. But they’re the kind of exotic and hard-to-understand instrument that any capital markets desk would never try to sell to an emerging market investor base.
On the other hand, the appetite for CVRD equity – and mandatory convertibles are essentially a forward sale of equity – is no longer particularly strong among emerging market specialists.