Latin American capital markets: A brave new debt world
With Latin America’s equity markets still shut, some cash-strapped corporates will be able to turn to the debt markets to raise much-needed funds, although opportunities will be limited and only selective credits will have access.
Even so, corporate bond issuance volumes could hit last year’s level of $28 billion, according to one banker. "In each of the next three years about $50 billion of international Latin American bonds and loans are maturing. If just the maturing debt is refinanced, we’ll be very close to 2008 international volumes. Given equity markets are less accessible, the volumes of previous years should easily be exceeded," says Chris Gilfond, head of debt capital markets for Latin America at Citi.
One issue facing potential borrowers is pricing, as even-state owned companies will have to pay up relative to the sovereign to attract investors. "Pricing is still a mixed bag and there is still some work to be done for issuers to accept new pricing realities," says Michael Schoen, head of Latin America debt capital markets at Credit Suisse. "The success of the deals that have come so far is because, despite a decrease in hedge fund capacity, the real-money investors are still there and active."
Joining them are equity investors. With yields in emerging market debt at a similar level to expected earnings yields in the equity markets, and dividend yields minimal, equity investors are gravitating to bond trades.