LatinFinance - July/August 2014 - 18

DEBT
CAPITAL
MARKETS

Issuers have taken quick advantage of a rebound in appetite for Latin
American bonds following a brutal sell-off as the year began. But is the rally
storing up trouble? By Eduardo Garcia

Stretching out

Good times roll?
The Latin American bond market should
continue moving at a good pace for a
few more months, says JPMorgan's Latin
America DCM head Roberto D'Avola. "This
is the result of good market conditions that
translate into a good environment for good
quality issuers," he says. "In the absence of
any unforeseen negative event, this would
be a good year for the region."
A string of Latin American companies
have taken advantage of the strong appetite
to exchange or buy back bonds, in deals
that have been welcomed by investors
and could allow the companies to issue
debt at better terms in the future, market
participants say.
In Brazil, Fibria, Gerdau, Braskem,
Marfrig and Votorantim Cimentos
bought back debt in April and May. Three
Votorantim subsidiaries joined the fray in
June, while Marfrig carried out yet another
tender offer. Market observers applauded
their efforts.
The trend for liability management deals
is not confined to Brazil. Mexico's Cemex,
Ica and Findep, El Salvador's Telemovil,

isten to Mario Beauregard, chief financial officer at Mexican oil and gas
monopoly Pemex, and you might be forgiven for thinking companies in Latin America are in
no rush to lock in lower rates. Speaking to LatinFinance, Beauregard says he does not expect
a scenario of high volatility in the rates market that would send shockwaves into the region's
credit markets.
"To the extent that the US economy starts showing more solid signs of recovery, we may see
interest rates going up, but I don't foresee that happening in a disorderly fashion," he says.
Yet a wave of bond issuance and liability management exercises in Latin America, leading
up to the start of the soccer World Cup in Brazil in mid-June, suggest the region's financial
managers have been clamoring to take advantage of a new wave of global liquidity, and the
return of investor appetite for emerging markets, particularly Latin America.
Orders for Mexico's Grupo Bimbo's bond in late June - its first cross-border bond sale since
January 2012 - highlighted the strong demand for Latin credit: the Mexican baker increased
the size of its deal and tightened pricing after drawing some $10 billion in demand.
Guillermo Quiroz, Bimbo's chief financial officer, had told LatinFinance in May that the
firm was looking to take advantage of attractive market conditions to refinance a $2 billion
revolving line of credit, due 2019, that it used to fund its acquisition of Canada Bread.
Such confidence puts the volatility of the first two months of the year into sharp contrast.
The year started with intense pessimism in the Latin American bond market, as investors
and DCM bankers fretted about geopolitical turmoil in Eastern Europe,
currency volatility, doubts over Brazil's fiscal accounts, and decreased
Back to health
liquidity, sapping demand for the region's credit.
LatAm Eurobond issuance, 2014 monthly volumes
The market first came back to life in mid-March. It gathered pace in
25,000
April, when about two dozen issuers tapped the dollar, euro and Swiss
franc markets. The market flared up again in early May, with issuers able to
20,000
tighten prices prior to closing deals, including Brazilian pulp maker Fibria,
and pipeline firms Ocensa and Fermaca.
15,000
Amid the persistence of low developed market treasury rates, and risk
aversion toward Russia and Eastern Europe, demand for Latin American
credit has remained strong. May and June saw further flows into emerging
10,000
markets. Fund flow tracker EPFR said flows to emerging market bond funds
reached $2.1 billion in the week to June 5, the highest ever in the decade
5,000
EPFR has tracked those funds.
By late June, DCM bankers were still squeezing prices on the back
of high demand and ample liquidity, raising cheers from issuers, and
0
January February March
April
May
grumbles from investors who complained they were being priced out of
Source: Dealogic
attractive credits.

18 L ATINFINA NCE.COM - July/August 2014

June

http://www.LATINFINANCE.COM

LatinFinance - July/August 2014

Table of Contents for the Digital Edition of LatinFinance - July/August 2014