Latin Finance - July 2008 - (Page 24)

borrowers and investors Closing the Gap by Ben Miller ebt issuance has resumed in LatAm, but a gap looms between the demands of borrowers and requirements of investors as the aftershock from the subprime crisis continues to be felt. Though the region’s issuers can still get deals done, wider spreads are a turn-off to investment grade names not in desperate need of funds. High yield corporates are meanwhile struggling to divert investor attention from exceptionally widely priced first-world credits. “The challenge now is finding the right market,” says Ricardo Rivera, CFO of América Móvil, one of the region’s most sophisticated borrowers. “A year ago we could issue anywhere we wanted. Now there is a widening of spreads.” In what has become a broken record for officials at credits rated BBB or higher, Rivera says the mobile operator will look more at local markets. But overall the telecom has no urgent need to raise cash, other than to maintain a market presence. “It’s a difficult market, but for serious issuers that take the time to go out and appeal to investors, there are opportunities,” adds Rivera, speaking in early June at the fifth annual LatinFinance Latin American Borrowers and Investors Forum in Boston. After investors were burned so badly by ABS and CDOs, there has been some contamination in LatAm. Although the region seems largely immune to the problem, spreads on issuers in the US have widened to the point where investors do not need to look at EM for spread. LatAm borrowers, conversely, will not issue at the elevated yields investors are seeking to compensate for an uptick in global risk. “For issuers to come back to market, two things need to happen,” says Rivera. “Either you will have a price convergence [between LatAm and US/Europe] and investors look more at credits, rather than at prices, or we [the issuers] are going to D The LatAm debt markets are back, but there remains a gulf between investors and issuers. A repricing is in order, but neither side seems willing to move. stay out for a long time, and come back only when we need the cash.” “There’s clearly a disconnect and it’s a function of old-school supply and demand,” adds Jim Craige, portfolio manager and managing director at Stone Harbor Investment Partners, which manages $6 billion in LatAm. He expects a repricing, though it is difficult to say exactly when it will happen. Brazilian Revival One boost, at least for investment grade, may come from a knock-on effect of Brazil attaining high grade status. “There is a substantial amount of Brazilian blue-chip paper that will be coming to market very soon,” says David Rolley, vice president and portfolio manager at Loomis Sayles, whose shop manages $10 billion in EM debt. “So long as the transactions are properly structured, I think they will be well received.” With some exceptions – a $250 million offer from pharmaceutical producer DASA, a $150 million bond from meat packer Arantes Alimentos and a Lupatech perpetual tap – long-term dollar bonds for high yield names are still largely off the table. “There is a market at the right price,” for high yield, adds Rolley, noting that it might be around 400-500 basis points over US Treasuries for new issues from the region. In these choppy times, he explains that investors want issuers to keep it simple – large bullet maturities – and liquid. “Please tell your bankers to keep their creativity in the drawer,” Rolley adds. Investors both foreign and domestic will need to be coaxed, according to Su Casita CFO Mark Zaltzman. His shop has been getting deals done, but the difference between now and a year ago is that it takes a lot more work. “It requires a thorough process of education for investors,” Zaltzman says of his issuance strategy. In a story echoed by other Mexican issuers, Zaltzman describes going to see every buysider and having to thoroughly explain details of transactions while also clearly telegraphing plans for the Keep it simple, says Rolley “Either [US] investment grade or [US] high yield corporates have to tighten in, or emerging markets corporates have to widen out,” the investor says. Although the region has weathered the credit crunch well, getting Single A or Double A credits in North America and Europe at spreads equal to Single A or Triple B plus names in LatAm is far from normal market conditions. 24 LATINFINANCE July/August 2008

Table of Contents Feed for the Digital Edition of Latin Finance - July 2008

Latin Finance - July 2008 Contents Investment Banking Outlook Compensation Survey Colombia Investment Banking Borrowers vs. Investors Banorte Profile Braskem Financing Strategy Brazil Hydro Finance Peru Port Privatization Panama Money Flows Argentina Local Markets Guide to Banking Technology Who Said That?

Latin Finance - July 2008

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