“This has not been a fun week, watching the market collapse and receiving requests for pricing that are from la-la land,” said one LatAm syndicate banker. “Whenever the market has a fright, some bonds trade and some don’t and it’s impossible to know which to use.”
Fortunately for our friend on the desk, not only is it Friday but — despite another volatile week — there has been plenty of Latin American primary action to quench the market’s thirst. What’s more, the latest issuer to turn to bond markets was none other than Compañía Cervecerías Unidas (CCU), Chile’s largest provider of beer.
CCU attracted $1.45bn of orders on the way to a $600m 10 year, again showing that there is cash ready to be deployed in the primary market, even if execution is challenging and secondary market performance is mixed.
Several observers, however, found a peculiarity in the CCU’s bond, so we’d like to take the chance to invite all credit analysts reading to serve themselves a Chilean tipple and talk us through what one banker called the deal’s “funky” ratings. At BBB, S&P puts CCU two notches below the Chilean sovereign, while Fitch clearly has more faith in the Chilean people’s ability to imbibe — it rates the company A-, exactly in line with the Chilean government.
Perhaps this explains why some bankers were pricing this against the sovereign, but others used Chilean corps such as bottler Embotelladora Andina as comps.
(By the way, while we don’t object to a cold bottle of CCU’s Cristal lager, particularly on a warm summer’s day in Santiago, we’d recommend a glass of Carménère for this task… also available from CCU, of course).
Carry on drinking
CCU’s was the sixth LatAm dollar deal of the week. Açu Petróleo, Bradesco, GCC, Panama, and Agrosuper had preceded the Chilean company, opting to push ahead despite an uneasy tone. Be sure to read our deal write-ups for each of these.
In general, trickier conditions were reflected in modest books, in the two to three times oversubscribed range, and pretty generous new issue concessions. Even strong issuers like Panama and Bradesco paid more than 20bp — significantly more, according to some observers.
Agrosuper, another Chilean debutant, arguably had the best of the conditions on Wednesday as it notched its $500m 10 year. And the bond did trade up on the break. But there is little expectation that volatility will calm down, or that the rates sell-off is going to slow.
Brazilians adjust
The volatility is particularly badly timed for Brazilian issuers, with Brazilian credit having endured a tricky end to 2021 and corporates therefore wanting to use January get their funding done before presidential elections take centre stage. There had been talk of 10-15 new issues from Brazil in January alone, but just four have come to market so far. With a US holiday on January 17, there is limited time to reach that number.
Perhaps unsurprising, then, that Citi’s Brazilian DCM head Claudio Matos told us it was “probably optimistic” to expect 10-15 deals this month. Those who do come, he said, “will have to be pragmatic about pricing”.
“It’s a biased market that requires careful navigation, and investors are demanding higher concessions.”
Good news for potential supply: “most borrowers are pragmatic — they realise that the Brazilian macro environment and the US rates situation has changed since last year,” according to Matos.
Not such good news: a lot of those potential issuers may not be lured into difficult markets, as much of the pipeline is understood to be opportunistic, liability management-focussed transactions. Our piece on what bankers and issuers are expecting from market conditions here.
If the choppy start to the year has left you parched, have no fear. There may be just one LatAm issuer on the road, but it’s sure to keep you refreshed: the Central American Bottling Corporation, which bottles up soft drinks for Pepsi and beer for Ambev, is planning a sustainability-linked bond to finance a tender offer.
Have a great weekend, and do get in touch for a free trial to access all of GlobalCapital.
Saludos, Olly
This is GlobalCapital's LatAm Letter written weekly by Latin America reporter Oliver West. If you enjoy it, sign up for free in a matter of seconds here and feel free to pass it on to colleagues and contacts.
The best of this week’s LatAm bond coverage: