Latin Finance - November/December 2011 - 20

global contagion risk

copper, and soy should finish 2012 at similar levels to 2011. The prospects of sub-par growth remain a worry for many policymakers in Latin America and this has clearly been reflected in the abrupt shift in monetary policy in counties like Brazil. The Brazilian government has its sights on growth above 5.0%, and has aggressively pursued such goals through monetary policy and inflation targeting, says Tony Volpon, head of emerging markets research for the Americas at Nomura Securities in New York. “Even if Asia holds up and even if Europe can avoid a negative conclusion, there should still be lower growth in Brazil, as credit growth and labor growth slowdown,” Volpon says. “I don’t think Brazil will grow at the 4.5%-5.0% pace we’ve seen in the last couple of years. Once we have been through the slowdown, you won’t see 4.0%-5.0% growth, but 3.5% growth.” This may cause investors to reconsider the Brazilian domestic growth story that has drawn them to the region’s largest economy in droves.

CFO of BR Malls. “Now we have the cash. We won’t change our plans in terms of our growth plans and investments. We are well capitalized and well prepared.” The Brazilian shopping mall operator has been a regular user of the international debt and equity markets in the last few years, loading up on funds it uses to acquire new assets in what is still a fragmented industry. Though it’s impossible to predict how long the volatility will last, local DCM in Brazil is pretty open, Bousquet says. BR Malls is not planning any fundraising in the near future, but bonds, securitizations and bank loans are available locally to issuers.

GDP Growth Forecasts

Down, but not expected to be out 2011 Latin America Argentina Brazil Chile China
Source: JPMorgan

2012 3.2% 3.0% 3.4% 4.0% 8.5%

4.0% 7.5% 3.3% 6.5% 8.5%

Tricky Sell

Given the uncertainty hanging over the markets, selling the LatAm story will certainly be a trickier affair for both ECM and DCM bankers, who say market uncertainty means that issuers have to be fleet of foot and jump through windows of opportunity while they can. “What has changed are the recommendations and the dynamics of the market,” says Gustavo Ferraro, head of Latin American DCM at Barclays Capital. “Before, you set out your strategy and you would execute on that strategy. Now, because things are changing constantly, fine tuning is very relevant. Otherwise, you can miss out tactically.” Yet many corporates and sovereign are already well positioned to weather the storm in the short term, and are often more than content to wait on the sidelines. “We have the benefits that we have anticipated our initiatives in capital markets by raising equity while the ECM was still open,” says Leandro Bousquet,

“What we have seen in the past, at times of high volatility like we saw in last quarter of 2008, for good names with good histories there is always a market, even for equity,” Bousquet says.

Equity Hopes

If one asset class has learned to live with the volatility it is equity capital markets, which has only seen intermittent issuance since July, and only the odd follow-on from top secondary market performers or better-known names. Latin American McDonald’s franchisee Arcos Dorados raised nearly $1 billion in October as its private equity investors took their planned exit. This followed Brazilian wireless operator TIM Participações, whose $925 million sale was supported by parent Telecom Italia taking two-thirds of the deal. Colombia’s Ecopetrol raised $1.34 billion in July, but demonstrated the vulnerability that the country’s local

issuers face as they keep their books open for a prolonged period with the intention of attracting retail investors. “We need to see a reduction in volatility, we need to see a more healthy IPO market in the US which we aren’t seeing yet, and we still need to see a reversing of foreign flows into Brazilian markets,” says Fábio Nazari, head of ECM at BTG Pactual. Speaking in late September, Nazari says the peak of the outflows has already happened, adding the region could see 40-50 new equity deals in the next 18 months. However, when sales resume targeting the local LatAm investor will be key for many of these stories. “To get a deal done in Brazil, if the local investor community is fully engaged you are halfway toward a successful deal,” Nazari says. Bond issuers also began in October to reopen the markets after a lull – but only quasi-sovereigns – aware that a Europeaninduced slide could quickly shut things down again. “These environments might be less comfortable, but they can yield some good opportunities,” says Luz Padilla, portfolio manager at DoubleLine Capital, which manages $500 million in emerging markets. “There are some opportunities opening up. There are a lot of good credits that have cheapened up, but the question is can they get cheaper.” While the flight to quality has funds flowing into high-grade sovereigns and blue-chip names, Wamco’s Abad is eyeing opportunities in the high double B space, among names that may be on the cusp of investment grade. As with 2008-2009, there should be ample opportunity to pick up solid credits for those who understand the region’s fundamental strengths and take the view that growth in LatAm and China will remain reasonable. “If you take your eye off the ball and are worried about the top down and getting out, you are going to miss the potential pickup of some really good value in some credits if you look at it from the fact that their balance sheet strength is so much better than some of the US names,” Abad says. LF

20 LatinFinance

November/December 2011



Latin Finance - November/December 2011

Table of Contents for the Digital Edition of Latin Finance - November/December 2011

Latin Finance - November/December 2011
Contents
Contagion Risk
Mexican Credit
China Investment
Loan Markets
Mexico Banks
Sub-Sovereign Debt
Banks of the Year 2011
Argentina Investor Report
Reversal of Fortunes
Latin Finance - November/December 2011 - Latin Finance - November/December 2011
Latin Finance - November/December 2011 - Cover2
Latin Finance - November/December 2011 - Contents
Latin Finance - November/December 2011 - 2
Latin Finance - November/December 2011 - 3
Latin Finance - November/December 2011 - 4
Latin Finance - November/December 2011 - 5
Latin Finance - November/December 2011 - 6
Latin Finance - November/December 2011 - 7
Latin Finance - November/December 2011 - 8
Latin Finance - November/December 2011 - 9
Latin Finance - November/December 2011 - 10
Latin Finance - November/December 2011 - 11
Latin Finance - November/December 2011 - Contagion Risk
Latin Finance - November/December 2011 - 13
Latin Finance - November/December 2011 - 14
Latin Finance - November/December 2011 - 15
Latin Finance - November/December 2011 - 16
Latin Finance - November/December 2011 - 17
Latin Finance - November/December 2011 - 18
Latin Finance - November/December 2011 - 19
Latin Finance - November/December 2011 - 20
Latin Finance - November/December 2011 - 21
Latin Finance - November/December 2011 - Mexican Credit
Latin Finance - November/December 2011 - 23
Latin Finance - November/December 2011 - 24
Latin Finance - November/December 2011 - 25
Latin Finance - November/December 2011 - China Investment
Latin Finance - November/December 2011 - 27
Latin Finance - November/December 2011 - 28
Latin Finance - November/December 2011 - 29
Latin Finance - November/December 2011 - Loan Markets
Latin Finance - November/December 2011 - 31
Latin Finance - November/December 2011 - 32
Latin Finance - November/December 2011 - 33
Latin Finance - November/December 2011 - Mexico Banks
Latin Finance - November/December 2011 - 35
Latin Finance - November/December 2011 - Sub-Sovereign Debt
Latin Finance - November/December 2011 - 37
Latin Finance - November/December 2011 - Banks of the Year 2011
Latin Finance - November/December 2011 - 39
Latin Finance - November/December 2011 - 40
Latin Finance - November/December 2011 - 41
Latin Finance - November/December 2011 - 42
Latin Finance - November/December 2011 - 43
Latin Finance - November/December 2011 - 44
Latin Finance - November/December 2011 - 45
Latin Finance - November/December 2011 - 46
Latin Finance - November/December 2011 - 47
Latin Finance - November/December 2011 - 48
Latin Finance - November/December 2011 - 49
Latin Finance - November/December 2011 - 50
Latin Finance - November/December 2011 - 51
Latin Finance - November/December 2011 - 52
Latin Finance - November/December 2011 - 53
Latin Finance - November/December 2011 - 54
Latin Finance - November/December 2011 - 55
Latin Finance - November/December 2011 - 56
Latin Finance - November/December 2011 - 57
Latin Finance - November/December 2011 - 58
Latin Finance - November/December 2011 - 59
Latin Finance - November/December 2011 - 60
Latin Finance - November/December 2011 - Argentina Investor Report
Latin Finance - November/December 2011 - 62
Latin Finance - November/December 2011 - 63
Latin Finance - November/December 2011 - Reversal of Fortunes
Latin Finance - November/December 2011 - Cover3
Latin Finance - November/December 2011 - Cover4
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