Bonds from the United Arab Emirates do not typically pique the curiosity of Latin American bankers. After all, a sticky domestic investor base and a vastly different issuer set mean they are not a traditionally useful indicator of the state of the LatAm market.
Still, an emerging market new issue is an emerging market new issue. So, in the continued absence of any primary issuance from your correspondent’s own beloved region, we put in a call to some of the leads on the United Arab Emirates’ second ever sovereign bond (which reaped a $15bn book, by the way) and UAE-based property company Majid Al Futtaim’s hybrid bond, both priced on Thursday.
A banker at one lead told GlobalCapital he reckoned the deals were a positive signal for EM issuance beyond the Middle East — with the caveat, of course, that even the best issuers still pay healthy new issue concessions, and it had to be the right name, on the right day. Our full write-up of syndicate reaction in London and New York is here.
Fly me to the mandate
That’s not to say market conditions have improved much, of course. The mid-June double jab of US CPI plus the Fed’s 75bp interest rate rise has left the technical picture “broken”, said one banker this week, as we have discussed previously.
This is why names that look like screaming buys (oil and gas issuers printing money yet offering yields of 8.5%, to take just one example) are failing to catch a rally. Buyers don’t want to buy knowing things are only going to get worse from here, and holders do not want to sell knowing this paper is severely undervalued.
It’s more a case that this week’s CEEMEA action shows that deals can get done. Investors have to buy something; they aren’t going to just shut their funds down. And at some point, certain issuers of strong enough credit quality will decide it’s worth paying whatever it takes — most likely because, with recession talk only intensifying, there could be worse in store.
Apart from anything else, origination and syndicate bankers have taken the lull in market activity to spend more time on the road than at any point since the pandemic began. This encourages conversation, forces borrowers to confront the state of the markets, and has — in the last couple of weeks especially — begun to materialise in mandates from issuers who “want to be ready” should an acceptable window appear, said one syndicate banker.
Colombia, the risk is wanting to stay
Whether these mandates translate into new issues in the short term is another matter, and the market appears to have lost one of the prime reopening candidates this week. Colombia has done an admirable job of using higher revenues to reduce its reliance on external bond markets this year, but bankers say it still needs to raise around $1.6bn abroad.
GlobalCapital understands at least a couple of banks had been lined up for the job, but election fears and the stressful macro context means Colombia’s bonds have not caught a break all year and the sovereign has remained conspicuously absent from primary. Investors said they had been gearing up to welcome a Colombia trade, but any chance that the sovereign would sneak in this summer looked to have been dashed on Sunday, when the market’s worst nightmare came true: left-winger Gustavo Petro was elected president.
A predictable sell-off followed, and all eyes will be on whether Petro selects a finance minister who suggests moderation. But several investors feel the sell-off is overdone, arguing Petro has already moderated, and that any radical proposals will be politically unworkable. After a decade sending bond dispatches from Colombia, we certainly feel that the idea of Petro is likely to end up being a lot worse than the reality — without suggesting, of course, that he holds the answers to Colombia’s fiscal deterioration.
It was all unfortunate timing for oil company Gran Tierra, which on Tuesday decided to abandon a bond exchange that would have enabled it to push out debt maturities. Lucror Analytics credit analyst Lorena Reich called it “very disappointing news” for Gran Tierra, suggesting the company was caught in the middle of the downturn in global risk appetite and concerns over Petro’s victory.
Argentina’s IRSA has also failed to obtain the response it was hoping for from an exchange offer, but is not giving up and has extended the deadline for bondholders to participate.
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 it 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 and EM bond coverage: