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Capital Markets

Debt capital markets: Latin American sovereigns on track as corporates squeezed

Latin American sovereigns are on track to meet their 2009 financing needs after an impressive start to the year, according to senior debt bankers. Barclays Capital reckons that 34% of this year’s estimated total of $19 billion of emerging market sovereign issuance has already been successfully placed despite fears that the US and Europe would crowd them out. Latin American corporates, in contrast, are facing more difficult and expensive financing.

With the financing needs of the US and European governments, corporates and banks estimated at $4.5 trillion, emerging markets borrowers will feel a squeeze in 2009. Only the best-quality sovereigns and blue-chip corporates are likely to get away on the public markets.

Three Latin sovereigns have issued recently – Mexico, Brazil and Colombia. On December 18, Mexico priced a $2 billion 10-year bond at 390 basis points over US treasuries, via Goldman Sachs and Morgan Stanley. On January 6, Colombia and Brazil both priced $1 billion deals at 503bp and 370bp over treasuries respectively. Morgan Stanley and Barclays Capital priced Colombia’s deal; Goldman Sachs and Merrill Lynch led Brazil’s deal. Mexico paid a 40bp new-issue premium over its existing curve; Brazil and Colombia paid 50bp.

The Brazil deal was criticized for its aggressive pricing, and the bonds traded below their offer price after launch. Still, these deals suggest that there is investor appetite for strong Latin credits, albeit borrowing opportunities will be limited.

"I think that Latin sovereigns will continue to price aggressively as long as they continue to demonstrate fiscal discipline," says Paul Spivack, co-head of global fixed-income syndicate at Morgan Stanley. "A lot of money has poured into emerging market credit funds in recent years.

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