LatinFinance - Special Edition - August 2013 - 12

Corporates catch up
Latins in the CEMBI and
EMBIG indices ($bn)
embig latin
300

embig latin
Sovereign

250
200
150
100
50

The market
value of the
Latin american
components of
the JPMorgan
Corporate
emerging
Market Bond
Index and
Latin sovereign
components of
the emerging
Market Bond
Index, Global,
has risen

12 l atinfina nce.com - 25 Years - August 2013

Dec-2012

Dec-2009

Dec-2006

0
Dec-2003

in 1988, there was no latin
corporate bond market to
speak of. instead, companies
took opportunistic shots at the
market, while sovereign borrowers struggled to pull themselves out of, yet often fell back
into, crisis.
a quarter century later, latin america’s debt capital markets – now the most advanced
of any emerging region – offer
a sophistication few could
have imagined back then. and
today, corporate debt markets
represent an asset class that
is not only a central funding
vehicle for increasingly many
companies, but also an attractive investment for institutional
accounts.
chile was roundly applauded when it nabbed latin america’s first investment grade
rating in 1992. now, around
three-quarters of the region’s
sovereigns have escaped junk
terrain. as the sovereign ratings
have risen, so have the credit
ceilings for corporate borrowers, allowing latin companies
the opportunity to fund
through the bond market
the figures prove the point.
in the year to July 16, latam
high-yield and investment
grade corporates borrowed
$43.9 billion from 66 crossborder deals, according to
Dealogic. in 1995, corporate
borrowers sold just $1.7 billion
from 16 deals.
cemex was an early

Corporate bonds
Between the lines

Dec-2000

THE
EVOLUTION
OF THE
MARKETS
1988-2013

Latin American corporates have taken great strides in their
market funding strategies. Today, debt market access for the best is on a
par with their global peers. By Mariana Santibáñez

Dec-1997

sharply since
their creation.
at $235 billion
in mid-2013,
Latin corporate
issuance in the
CeMBI outstripped that
of Latin sovereigns in the
eMBIG, which
stood at $228
billion at the
same time.

pioneer, finding demand for a
$100 million 12 non-put three
year convertible bond in 1990,
the year after mexico signed
its Brady bond restructuring
agreement. Petrobras was the
first Brazilian company to issue
after the 1980s meltdown, selling a $250 million two non-call
one year bond yielding 13.5% in
1991 – even before the sovereign
rescheduled its debt.
today, some predict the
latam corporate bond market
will continue growing as sovereigns increasingly borrow in
local markets and cross-over
investors allocate more to
emerging markets to capture
the spread on offer.
“overall the credit markets
have developed dramatically and there is no doubt that
we’ve experienced a paradigm
shift,” says alexei Remizov,
head of capital markets Brazil
at HSBc. investors, he says,
can now see the macroeconomic outlook more clearly
and have a better understanding of, as well as more certainty
and confidence in, the regulatory frameworks for latin
borrowers.
Risks remain
Yet debt from first-time issuers
makes up more than a quarter of em bonds. that offers
chances to invest tactically and
selectively – but also difficulties, says Robert abad, emerging markets portfolio manager,

at Western asset management.
“While the asset class itself
may have earned an investment-grade rating years ago
– which has served as a magnet
for more diverse and sizable inflows in the asset class – under
the hood lies a veritable soup of
economic and political risk that
should not be underestimated
given the propensity for it to
boil over at any moment,” he
says.
Part of that soup includes
a growing latam high-yield
bond market, which brings
with it a higher likelihood of
default. already oGX, Grupo
Rede, lupatech and the mexican homebuilders are notable
examples of borrowers missing
their obligations. the proliferation of high yield issuance
could mean more secured
deals, or more aggressive structures, are used.
many now expect market
volatility to rise, after an extended period of abundant
liquidity, which encouraged a
greater number of low-rated
issuers to tap the markets,
abad says.
LatAm blue chips
While the riskier names are
growing, so too is the pool of
top-quality latin issuers. the
JPmorgan corporate emerging
market Bond index (cemBi)
shows issuance from latin
corporates grew from $11.5 billion in December 2001 to $235

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LatinFinance - Special Edition - August 2013

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