Welcome the LatAm Letter’s first edition since the start of April, a time at which Latin America bond deals were just about getting done even if concerns over rates, inflation, the war, recession were making life difficult and issuers hesitant.
A month on, and LatAm deals are still getting done… just about. Heritage Petroluem, the main operating subsidiary of Trinidadian state oil company TPHL, notched a $500m seven year on Thursday in the week’s only primary market action from Latin America or the Caribbean.
It may not have been the $700m 2033 trade that the company was initially seeking, but it was enough to give TPHL some important breathing room with debt amortisations, probably earn the parent a two notch upgrade from S&P, and remove a pesky administrative covenant that TPHL had been breaching. All while the S&P 500 sold off 3.6% on Thursday, and the 10 year US Treasury gave up 12bp on the day.
Indeed, those concerns over rates, inflation, the war, recession are if anything making life a little bit more difficult than a month ago. What’s more, most issuers remain hesitant (no sign yet of Antofagasta or Davivienda, which both roadshowed in April).
LatAm new issue volumes are down over 40% year-on-year, and while there have been no particularly nasty surprises in recent weeks (this week’s 50bp Fed hike was well in line with expectations), the longer there is no particularly good news, the more tension builds in the bond market. This has some CEEMEA bankers fretting about the future of the market as they prepare for a “new normal” of significantly lower volumes, my London-based colleagues reported this week. We discussed it on the GlobalCapital Podcast too.
Fear not! As one New York syndicate banker highlighted, LatAm is probably the “best of a bad bunch” when it comes to EM bond sales. After all, at least we’re not dealing with entire swathes of supply sources being reduced to virtually nothing (cf. Russia, oil-rich Middle-eastern sovereigns…). And we argued there’s reason to think a big chunk of EM deal flow will eventually return.
Awards deadlines
The last LatAm Letter also announced the opening of voting for GlobalCapital’s 2022 Bond Awards. Today: a friendly reminder that polls are still open but will only remain so until May 13, with several awards up for grabs for Latin American DCM houses, companies, bankers and funding officials.
Winners, as always, will be decided exclusively by votes from market participants, so if your institution has not yet voted, be sure to check out this link for all you need to know. Or get in touch at oliver.west@globalcapital.com if you have any doubts.
A nervy wait
If waiting for the winners of GlobalCapital’s awards is generating too much nervous energy, just be thankful you’re not a holder of El Salvador’s $800m January 2023s (unless you are, in which case good luck). The sovereign’s next bond maturity is firmly in the gaze of creditors, and Moody’s cut the sovereign’s rating by two notches to Caa3 this week to reflect the lack of a “credible” financing plan.
There appears to be a consensus among sell-side analysts that El Salvador will be able to scrape together the funds to pay, and finance minister Alejandro Zelaya has several times expressed certainty that the payment will be made.
However, as we wrote this week, some investors are becoming increasingly nervous. The price of the bond is down into the 70s, and some bondholders told GlobalCapital this week that the reassurances of Zelaya will mean little if president Nayib Bukele decides he wants to “use that $800m on stuff that’s more popular with voters”. After all, international bond market access is out of the question — the country has not even been able to flog its Bitcoin/volcano bond yet.
Details of a proposed pension reform that could free up some funds for the payment are expected in September. But whatever the government comes up with, it’s likely to be a long and nervy wait for bondholders.
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.
To vote in GlobalCapital’s bond awards:
The best of this week’s LatAm bond coverage:
Investors losing faith in El Salvador as Moody’s slashes rating
Lower EM volumes sign of ‘new normal’ with bumper years thing of the past
GlobalCapital Leader: EM volumes — all is not lost (free-to-read)
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