LatinFinance - January/February 2017 - 23

and for locals, the tax amnesty is an opportunity to put their money to work.
"This is billions of inflows from overseas," he says. "In the past, you could not
buy this kind of investment and there was a
lack of regulations."
Yet there is much more to be done. The
tax amnesty is just a first step, and the
government should continue an aggressive
drive to develop the local markets, says
Puente's Costa.
"If you look at the participation levels [in
the local capital markets] from retail investors, it is too small," Costa says. "The idea is
to give funds more freedom to make them
attractive to the public and increase earnings in that sector."
In November, the Macri administration
presented a capital markets reform bill to
congress. The legislation changes the tax

MARTÍN REDRADO
FUNDACIÓN CAPITAL

"THE AMNESTY IS
LIKE A JUMPSTART
FOR ARGENTINA INTO
A NEW PATTERN OF
DEVELOPMENT"

structure for mutual funds and limits the
powers of the local securities regulator. It
also cuts red tape to reduce liquidity costs
for investors, Costa says.
"For local funds, the tax amnesty, in the
context of local capital markets reform, is
a game changer," he says. "Mutual funds
can exploit this and de-lever their positions, and this can also simplify restrictions to open new investment accounts in
Argentina."
The capital markets bill would also
usher in new rules on derivatives, bankruptcy and inflation-linked debt securities,
similar to Chile's UF-denominated bonds,
Linklaters' Tenaglia says.
"There needs to be some transition into
a stable currency and, this way, we may
see longer-term deposits and mortgages
in pesos that could then lead to a bond

Building the domestic bid
Latin America's three largest local bond markets offer
a study in contrast. Colombia's market is gaining steam
and becoming more accessible to companies beyond the
top-rated issuers. But it still lags behind the two largest
exchanges in Latin America - Brazil and Mexico.
In Brazil, corporate issuers are hanging on the hopes
that interest rates will keep falling this year. The central
bank has started trimming the Selic benchmark lending
rate, cutting it twice since October 2016 to 13.75%, and set a
goal of lowering it to 13.25% in January. Economists predict
the Selic will drop to 10.5% by the end of 2017, according to
a survey from the central bank. As interest rates decline in
Brazil, more issuers will likely come to the bond market but
investors will likely press for longer maturities in return.
As the Brazilian market begins to improve, the outlook
for Mexico's market remains murky and everything has
come to a halt since Donald Trump won the US presidential election in November. Issuers are staying away from
the debt capital markets. The few that do venture into the
space in early 2017 will likely pay a higher cost of capital
than in previous months.
Mick Bowen takes a look at the prospects for the three
biggest markets.
Mexico's predicament
Mexico's state-owned oil company Pemex also had little trouble accessing the international bond markets in 2016. By December, when it
raised $5.5 billion in a three-part deal, it had covered its fundraising needs
through at least the first half of 2017. But Pemex may be the exception.
Trump's victory caught the market by surprise, and many Mexican
issuers have postponed plans to raise fresh financing, both at home and
abroad. "Everything is on hold," says an investment fund manager in

Mexico City. "People are waiting for things to stabilize." In the meantime,
businesses will have to turn to the bank market to raise financing in
Mexican pesos, he says.
"I don't think there will be a scarcity of financing," he says. "The cost will
be what the cost is, and it's going to be more expensive."

Public sector dominates
Mexican local bonds by issuer type at 30 November
Other
Pemex & CFE
Corporates
Development banks

Private financial institutions

Government

Public financial institutions

Source: Banxico

A banker in New York says interest rates will likely rise as the peso
slides against the dollar, resulting in higher financing costs, less liquidity
and ultimately lower demand in the local capital markets.
"Local currency issuance was substantially lower [in 2016 than in 2015],
and that had to do with the peso and interest rate volatility," he says. "This
pushed many issuers there to look at external markets."
The same trend will likely continue in 2017, he says, as Mexican corporates look to make larger issues with extended maturities. "Nothing beats
the dollar markets with respect to size and tenor."

January/February 2017- L ATINFINA NCE.COM 23

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