Latin Finance - July 2008 - (Page 25)

borrowers and investors year. In the liquidity fueled excesses of 2007, investors placed huge orders on Su Casita bonds with barely a glance at the prospectus. Su Casita had only done one RMBS by June 1, while Zaltzman says his firm should have done 2-3 transactions in that period. Ample liquidity in local markets has kept Mexican issuers afloat, and Zaltzman does not see a return to dollar funds – which he tapped until a year ago – anytime soon. With investment US grade names issuing at double the coupon Su Casita issued at two years ago, foreign investors are likely to stay in the States where they can get better credit ratings and higher yields. Competing with foreign borrowers: Zaltzman “This is going to take a few years to go away,” Zaltzman forecasts. “Right now my biggest competitors for foreign investors are foreign companies.” Local Limitations Local markets are always appealing to avoid an asset/liability mismatch. But bigger borrowers will hit constraints on duration as well as liquidity in a market that limits holdings of single names by investors. “In terms of cost, you can probably get cheaper funding in the local markets,” says Mauricio Alazraki, CFO of Pemex. “But right now it would be more difficult to get longer tenors.” Pemex raised about $10 billion last year, Alazraki says, adding that this year the state-owned oil giant should raise around $5 billion and will be selective about where this is done. Alazraki says other funding options include export credit funding and multilateral debt. Although suffering a lack of investment, Pemex is sitting pretty following a $1.5 billion May issuance. Lack of depth in local markets is a difficulty for the international buyside too. Rolley says his shop likes local market transactions, but they lack critical mass and secondary liquidity. Mexico could do a lot more to encourage issuers and broaden the market, corporates say. Insurance companies, pension funds, and mutual funds boast about $200 billion in assets, according to Zaltzman. Reaching all three can be tricky, as pensions tend to focus on underlying assets and want fixed rates, while mutual funds prefer shorter floatingrate issues, he adds. Documentation is another hurdle for issuing in Mexico, says Alazraki, adding that he can issue in a single day in the US, as long as the company’s financial numbers are fresh. He cites Colombia as a regional market where regulators have adopted a US approach, requiring less filing and faster access. “In Mexico, you might like the market at one point, but when you’re ready it’s a different market,” he adds. In addition, the withholding tax that applies to buying Mexican corporate securities is a limitation for companies like Pemex, which competes for investor attention with the sovereign, on whose issues the tax does not apply. Craige says Stone Harbor is positive on local markets where the government has sensible monetary policy and a commitment to the financial sector. Brazil is particularly attractive, he says, adding that he is happy with central bank policy there. He also likes long end interest rates, and expects the yield curve to invert. “We think three years out we’ll look back and see a convergence like we’ve seen in Mexico,” Craige says of Brazil, adding that his shop has similar expectations for Colombia. on everyone’s mind is the strength of global banks, whose problems have complicated borrowing conditions. News of downgrades and emergency injections of capital from institutions like Citi and Lehman Brothers continue, despite the apparent strength of their regional offshoots. A continued downturn in US housing markets and talk of recession will do little to allay fears. Credit not liquidity crunch, says Mato “If we see another bad year for the banks in 2009, I think there will be a concern that our funding will be more expensive, or that you can’t find funding,” says Alazraki. Inflation worries may also complicate a convergence of terms in local and dollar markets, with investors keeping more money away from the region. Rolley is concerned about central banks being behind the curve, adding that there has been a response to food and oil shock but less concern about follow-on effects. “It may affect how investors feel about certain transactions,” he adds. The individual credit story is what Rolley stresses will ultimately win investors over. The challenge for LatAm remains pricing of individual credits versus options in other regions. Even though there has been a shift of liquidity into emerging markets– and with that a move to local from cross-border markets – problems in the US make this difficult, according to Gerardo Mato, cohead of global banking for the Americas at HSBC. “We see it more as a credit crunch than a liquidity crunch,” he adds. LF Outside Help? Despite local markets strength and issuers’ claims of bullishness in the long-term, outside factors may play more of a role in reuniting LatAm issuers and investors. First July/August 2008 LATINFINANCE 25

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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