The grip of the credit crunch seems to be easing for Brazilian corporates wanting to issue debt. This optimism from Brazil is in line with the rest of Latin America, where the debt market fog is clearing.
Construtora Norberto Odebrecht, the Brazilian civil engineering and petrochemicals group, sold $200 million of 10-year notes in a reopening on April 7 with a yield of 7.426%. The bonds came in tighter than for issues by US and UK banks an impressive outcome considering Odebrechts BB+ rating. "We are seeing a lot of demand for Brazilian debt. Investors can see that Brazilian corporates continue to have strong balance sheets and good management teams in place. Many big Brazilian names are also looking to diversify their risk by buying abroad investors like this," says Patrick Gontier, head of fixed income at Bradescos BBI.
Odebrecht is the seventh Brazilian borrower to complete a bond offering in the international markets since January, according to Dealogic. Michael Schoen, head of debt for Latin America at Credit Suisse, says: "Investment grade issuers from Latin America have consistently had access to the capital markets. And recently, we were able to successfully reopen the Odebrecht bond, a non-investment grade deal. The next question is whether the market is ready for new names, or whether only established borrowers will have access."
Banco Fibra brought $150 million to market, soon after Odebrecht, with a coupon of 6.75% through Standard Bank, and BicBanco brought $250 million to market in the last weeks of April. Gontier thinks that these bond deals indicate that Latin American names, especially Brazilian and Mexican ones, are now perceived as relatively safe investments when compared with their emerging market peers. Therefore lower-rated names, such as these banks, will continue to get through successfully.
Even the sovereigns are seeing some new upside. In January, Credit Suisse priced a Mexican bond at 170bp. On the same day GECC (General Electric Capital Corp), a AAA rated company priced a 30 year deal at 165bp. A day later the bank priced a bond from the GCC region at 170 basis points. "This would never have happened before the crisis it is a sure sign that the Latin American region is going to come out of this credit crunch in decent shape," says Paul Tregidgo, vice-chairman, debt capital markets, at Credit Suisse. "Debt in the major economies of Latin America has definitely outperformed other market areas." The Colombian government also sold an oversubscribed $650 million of dollar-denominated bonds due 2017 and $350 million due 2037, to yield 6% and 6.6% respectively. "If Colombia wanted to do more next month then it wouldnt be quite as tight but would still be fine," says a banker.