Before we get into the exciting business of an actual new issue from Latin America, a reminder that polls opened earlier this week for GlobalCapital’s 2022 Bond Awards.
There are several awards up for grabs for Latin America DCM houses, companies, bankers and funding officials — with winners, as always, to be decided exclusively by votes from market participants. Be sure to check out this link for all you need to know about voting in the annual poll, and remember to fill out your vote before the April 20 deadline.
We have a winner
One intriguing aspect of GlobalCapital’s bond awards is that investment banks are invited to vote — confidentially, of course — for their competitors. This requires a generosity of spirit that was very evident in our conversations with DCM and syndicate bankers this week as the bond market welcomed its first LatAm new issue since March 2, and the first corporate new issue from the region since CFE on February 8.
So timid have LatAm borrowers been about turning to capital markets that most bond bankers were by now quite happy for their rivals to take the glory of leading the first deal back if it meant the return of some primary action that could encourage gun-shy issuers.
Therefore, when América Móvil on Wednesday won the (not very hard-fought, it must be said) race to reopen the LatAm market with a $1bn 10 year bond that will be assumed by its mobile towers business Sitios Latinoamérica once it is spun off from the parent group, the company found plenty of well-wishers.
Sure, the unusual structure provoked a lively pricing debate, because once Sitios Latinoamérica takes over the deal it will be rated BB+/BBB- (versus América Móvil at A3/BBB+/A-). But wherever you put fair value, execution was smooth enough, with over two times oversubscription and 25bp of yield tightening.
Moreover, by Thursday afternoon, the deal was almost a point higher in secondary, and around 7bp tighter on a spread basis. This only reaffirmed the cautious optimism that, in the words of one observing EM syndicate banker, the new issue provides a “positive reference point” for other issuers.
“It’s really quite lovely to see it trade like that,” said another.
No prizes
GlobalCapital’s LatAm desk’s heart was equally warmed to see a new issue trade well. After all, finding EM investors spending significant time on LatAm since Russia invaded Ukraine has been quite an arduous task.
El Salvador has at least been grabbing the world’s attention this week — but not, alas, because it just issued the world’s first Bitcoin-linked sovereign bond, as it had initially promised to do between March 15 and 20. In fact, that window came and went without so much as a prospectus.
We were not offering prizes for predicting predicted that El Salvador, which has a 10 year bond yielding almost 20%, would struggle to sell its Bitcoin bond with a coupon of just 6.5%. But apparently some investors had been staking their hopes on a successful transaction, believing the Bitcoin-linked funding would open up some wonderful new source of external liquidity that would enable El Salvador to repay its looming $800m January 2023 bond maturity.
In a free-to-read opinion piece this week, we argued mainstream bond investors should not be disappointed that El Salvador’s Bitcoin bond has been delayed. In fact, the best thing for bondholders would probably be if this deal flops, essentially forcing president Nayib Bukele to enact a more conventional economic policy adjustment.
Of course, bondholders may well be facing the worst of both worlds. There’s a decent chance that the Bitcoin bond is neither a roaring success that leaves El Salvador with plenty of cash to repay its Eurobonds, nor a complete flop that forces a comprehensive rethink. If the deal limps over the line, it could be enough to encourage Bukele to push harder with the Bitcoin agenda, distancing his country further from conventional sources of funding, but not enough to allow El Salvador to repay its debt.
No prizes, either, for Argentina for getting its $44bn extended fund facility past the IMF’s executive board. As we reported, investors and analysts are sceptical that the deal — which comes late in Alberto Fernández’s presidency after plenty of dithering early on — will do much to fix the country’s economic imbalances.
However, Brazilian meatpacker Marfrig does deserve an honourable mention for this week notching a second upgrade in four months from the same rating agency. S&P believes that Marfrig’s increased influence over poultry producer BRF will enhance its business profile, and now has the company at BB+, just one rung below investment grade.
The LatAm Letter is taking a break in April, and will next publish on Friday May 6. Write to phil.huntsman@globalcapital.com and obtain free trial access GlobalCapital to continue reading our copy in the meantime.
Have a great month!
Saludos,
Olly
To vote in GlobalCapital’s bond awards:
The best of this week’s LatAm bond coverage:
Russian Railways rattles but Swiss investors stand firm on EM
GlobalCapital View: El Salvador creditors should hope Volcano bond plans turn to ash (free-to-read)