According to Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities, emerging markets registered its highest ever quarterly issuance in the second quarter, at $231bn. And Matthew Doherty, head of CEEMEA DCM syndicate at Deutsche Bank, said the first half of the year was the busiest on record.
Although Deutsche Bank “naturally” expects the pace to slow into year end, Doherty believes CEEMEA could surpass its all-time record of $200bn for the year — set in 2019 — “particularly if the economic impact for Covid is more severe than first expected”.
There was no sign of a let-up this week, in Latin America at least.
Brazilian miner Vale, El Salvador, Colombian corporates EPM, ColTel and Ocensa, and Mexican lender Banorte all tapped bond markets this week, with Chilean non-bank lender Tanner still in the pipe and Argentine names YPF and Telecom Argentina having announced par debt exchanges, even as the sovereign is in the throes of debt negotiations with its creditors.
In CEEMEA, issuance continued at a steady pace, with Romania making its second trip of the year to bond markets for a $3.3bn dual tranche transaction. The Central and Eastern Europe region also produced two corporates this week, with investors proving happy to take down the new supply.
While sovereigns have dominated issuance year-to-date as governments borrow to finance their Covid-19 responses, Doherty expects the remainder of this year to see more corporates and banks coming to market.
Both London and New York-based EM bankers cite the US election as a reason companies are accelerating funding plans.
“Everyone is cognisant of the US elections,” said Doherty. “As such, we expect many issuers shall attempt to front run the US election, with the vast majority of the remaining supply for this year coming during September.”
So far, bond investors have proven more than willing to help countries fund spending plans, even in the knowledge that debt ratios are rising sharply amid lower economic growth and fiscal revenues, and higher spending.
El Sal sends signal
El Salvador’s 32 year deal on Wednesday — if quite cautiously received — was arguably the clearest signal that the bond markets are available to almost any government not actively restructuring its debt.
The B3/B-/B- rated Central American sovereign raised $1bn of 2052 notes on Wednesday, pricing at 9.5% via Santander and Scotiabank.
Pricing was in line with initial price thoughts, and the $1.6bn book barely covered the maximum $1.5bn deal size that El Salvador had been seeking. But the fact an issuer with short-dated bonds trading around 10% could issue at all suggested the appetite for yield was overwhelming for some.
Mexican lender Banorte took the new issue market for Latin American banks another notch down the credit curve on Thursday, as it issued the first additional tier one deal from the region since the Covid-19 pandemic struck.
Banorte set initial price thoughts on its perpetual non-call 10 notes at 8.875% area, then offering guidance of 8.375%. The Baa1/BBB rated bank sold $500m of Ba2/BB- rated Basel III-compliant securities at 8.375%, pricing the notes at par. Bank of America, Credit Suisse, Goldman Sachs and MUFG were bookrunners.
Also on Thursday, Colombian pipeline operator Ocensa sold $500m of seven year paper at 4.125%, having tightened from initial price thoughts of mid to high 4% area. Leads Bank of America and Citi reoffered Baa3/BBB-/BBB- rated Ocensa’s new 4% coupon notes at 99.247.
This week’s Lat Am supply had a distinct Colombian flavour. On Wednesday, EPM (Baa3/BBB) — the utility owned by the Municipality of Medellín — raised $750m-equivalent of funding with a new $575m long 10 year in dollars at 4.5%, and a reopening of its July 2027 global peso notes that landed at 7.875%.
Goldman Sachs, HSBC and Scotiabank were bookrunners on the deal, which was 3.2 times oversubscribed. Bankers estimated the new issue concession on the dollar tranche at 0bp-10bp, depending where they spotted the existing 2029s.
On the same day, ColTel, the BB+/BBB- rated Colombian subsidiary of Spain’s Telefónica, sold $500m of senior unsecured 2030s at 3.95% having set initial price thoughts of mid-4%. The order book peaked at $4bn, before slipping to $3.5bn after tightening.
Bank of America, BBVA, BNP Paribas, JP Morgan and Santander were bookrunners.
Brazilian miner Vale had on Monday returned to bond markets for the first time in three years, targeting a new Ba1/BBB-/BBB- rated 10 year.
Leads BB Securities, Citi, Crédit Agricole, Mizuho, MUFG and SMBC set initial price thoughts at 4.375% and soon attracted about $9bn of demand.
The company offered guidance of 3.9%, plus or minus 5bp. With the book remaining “sticky”, according to a banker on the deal, Vale launched a $1.5bn trade at 3.85%, the tight end.