Some bankers are struggling to make sense of it all. Chile stepped into the market on Thursday with a $4bn triple-trancher that attracted over $20bn of orders at the peak — a book size that feels from a bygone era in today’s world of mostly modest oversubscription.
The deal certainly did a good job of showing that, no matter Jerome Powell’s perceived eventual hawkish turn on Wednesday, new issue markets for Latin America are alive and … we’re not sure “well” is the word. More like “weird”, according to one syndicate head.
He was struggling to draw conclusions from Chile’s deal — behind the bumper book lay new issue concessions as high as 20bp on the five year and 30 year tranches, and around 15bp on the 12 year.
“If Chile’s paying 20bp, what would Brazil have to pay?” said the syndicate banker. “I’m trying to figure out what it all means and where it all firms out, but each deal is different and I’m struggling for conclusions.”
As we wrote this week, one conclusion is that LatAm buyers are after high quality assets — and at A1/A/A-, Chile is just about the best there is in the region. High yield issuance is possible too — as Comcel, the Millicom-owned Guatemalan telco showed as it increased a planned $750m deal to $900m on Thursday on the back of $2.5bn of demand.
But then Ba1/BB+ rated Comcel, in the words of one credit analyst, is the “Ferrari” of EM telcos. We’re not exactly sure the metaphor works, but point taken: it certainly has Ebitda margins and leverage ratios you’d love to take for a spin. Full story here.
What remains to be seen is the level of appetite for lesser-known, harder to understand borrowers. Inversiones La Construcción (ILC), a Chilean holding company for various financial services and private health companies, began investor meetings on Monday but is yet to emerge. A BBB+/BBB rating suggests a deal is there to be had if the price is right, but one credit analyst admitted to being perplexed at how to find fair value for such an unusual mix of businesses in a market that has endured very mixed aftermarket performance so far this year.
Meanwhile, Ingenio Magdalena, the B1/BB- rated Guatemalan sugar producer and biomass power company, is still monitoring markets ahead of what would be a debut deal some nine days after beginning its roadshow.
Adding to the weirdness, in the eyes of some LatAm purists, was Ero Copper on Wednesday. Sneaking in ahead of Powell’s speech, the Canada-listed company notched a $400m eight-year sold to high yield buyers off the bookrunners’ leveraged finance desks — despite operating mines exclusively in Brazil.
LatAm buyers have not yet made peace with single mine assets (some live with bad memories of Mexico’s Cobre del Mayo), but the issuer’s levfin strategy did the trick, with a 6.5% yield coming well inside the levels at which EM-dedicated accounts told GlobalCapital they’d want to get involved.
Swiss rolling with the punches
Elsewhere, a date for the diary. On February 9, Crédito Real is due to repay a Sfr170m ($182m) Swiss franc bond, and rating agencies are worried that its plans to fund this maturity are floundering. S&P cut the company by two notches on Monday and Fitch followed with a three-notch downgrade on Thursday. Crédito Real is now rated B-/B-, and facing “worsening business flexibility and a very weak funding and liquidity profile” amid rising refinancing risks, according to Fitch.
Of perhaps more concern, Alexis Panton at Stifel reckons that even if Crédito Real is able to raise funds to pay down the Swiss franc bond, “significant challenges remain” — including a “weakening macro-environment, higher interest rates and inflation, which could weigh on already thin margins”.
Swiss franc buyers are a conservative lot, usually sticking to investment grade paper, and their rare forays in Latin American high yield credit have not always worked out well. Argentina defaulted on some Sfr400m of Swiss franc bonds as part of its mega restructuring in 2020, for example.
You may have therefore blinked twice when you read that Itaú (Ba3/BB-/BB) was turning to Switzerland for funding this week. It had been nearly eight years since the last Brazilian Swiss franc deal.
Yet it was not Itaú Unibanco, Brazil’s largest private sector bank, that was to tap the markets, but A3-rated Itaú BBA International, the lender’s UK subsidiary and northern hemisphere platform for its international private banking and corporate and investment banking businesses.
Itaú UK raised Sfr150m of three year paper, paying 87bp over Saron mid-swaps, continuing a strong start for the year for LatAm-related issuers in Swissies, following BCI and CAF earlier in January.
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.
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