LatinFinance - March/April 2015 - 29

rency debt and that needs to develop," she says.
Governments, regulators and borrowers themselves have been
doing what they can to deepen liquidity in the local markets. Mexico
has seen a "clear path" of increased foreign investment in sovereign
debt since it was made euroclearable in the early 2000s, says Jorge
Mendoza, Mexico's head of internal and external debt issuance.
The government has also sought to draw in international investors through tax exemptions for infrastructure debt.
In Mexico, corporates have been looking at ways to deepen the
liquidity of their peso-denominated bonds for some time. América
Móvil, for example, pioneered a new structure dubbed título de
crédito extranjero, which are traded interchangeably on local and
global markets.
Marcelo Menusso, vice-president for emerging market bonds
at Oppenheimer Funds, nonetheless describes the structure as
"baby steps": "That improved liquidity a little bit, but to be honest
probably not as much as we expected. At the end of the day a lot of
the local investors are really buy and hold. It's getting better - very
slowly, but it's getting better."
Recently, the government took up the cause,
pushing through changes
necessary to make
Mexican corporate bonds
euroclearable after hearing from investors that
liquidity was hindering
more investment.
"We actually spent
more than six months
working with Euroclear
trying to get everything
in place in terms of the
regulatory part, the tax
laws and sort of the flow of
Jorge Mendoza, Mexico
information that has to go
through the international
custodian and the local custodians," explains Mendoza.
Currency mix
Sovereign borrowers across Latin America are striving to increase
their borrowing in local currency. Mexico, for example, has gone
from having 80% of its sovereign debt in foreign currency in 1994,
on the eve of the Tequila crisis, to just 20% today.
For a time there was a push to bring that down further, says
Mendoza. That changed in 2008: "It was a good example, where we
realized how important it was to have a diversified investor base and
also different buckets of financing availabilities. Some markets were
closed; others were not."
Bouazza takes a similar view. "When we saw market disruptions
in the dollar market and it was not driven by necessarily fundamentals in the region, it was on the back of market disruptions from the
[US] Treasury. ... Today when you look on a global basis you have
the dollar that remains dominant and the volumes are quite large,
but you also have the alternative of a very mature and available euro
market."
For its part, Mexico has continued in a range of currencies, borrowing in dollars, euros, sterling and yen in 2014. Brazil, meanwhile,
finds that the dollar and euro markets typically suffice.
"We've been analyzing the possibility of issuing in other markets

such as Swiss francs, sterling or Japanese yen," says José Franco
Morais, Brazil's head of public debt issuance. "At the end we always
come to this point: external financial needs are very low in the case
of Brazil and the idea is to open up markets for the corporate sector
and those other markets are less relevant in terms of opening up
space for the corporate sector."
Restructuring
Another capital markets theme for 2015 will be the evolution of
Brazil's bankruptcy framework, roundtable participants say.
Oil services provider Lupatech closed Brazil's first pre-packaged
bankruptcy process last year. "I see that our market regarding
restructuring is developing faster in Brazil, especially due to the
legal certainty that we now have," João Feiteiro, Lupatech's general
counsel, says, referring to Brazil's 2005 bankruptcy framework.
"This process in the past would be much more difficult to get done
because of the uncertainty of our legal system."
Brazilian companies' ability to borrow to continue operations
whilst in bankruptcy is another advance of the bankruptcy framework, participants say.
OGX is the most prolific
company to have secured
debtor-in-possession (DIP)
financing. The process
should become clearer
as more Brazilian companies test it out, says Taisa
Markus, partner at Paul
Hastings.
"On top of the structuring and the credit
aspects of a restructuring,
I think there's a certain
psychological component
that has made these DIP
Taisa Markus, Paul Hastings
financings difficult to get
done," she says.
"Up until now a lot of companies that were approaching a
stressed situation, took a long time to recognize what was going on
so companies didn't hire financial advisors until a much later stage
than companies would have in the US. They didn't take a lot of steps
to conserve cash. A DIP financing takes a long time to put together
in Latin America. In the US these things are done very quickly in
comparison. I do think as there are more and more precedents in
the market, the process will become easier and quicker to navigate."
Yet the situation now is not straightforward, cautions Ajata Mediratta, co-president of Greylock Capital. "We acknowledge that the
Brazil bankruptcy code is changing. But we find it still challenging
to do DIP financings in Brazil," he says.
He points to one company struggling to raise new cash: "It's very
difficult because they don't have many unencumbered assets that
have real value on a standalone basis. And then you have banks
that also involve many with personal guarantees. And so they are
very unlikely to subordinate themselves to any financing. And so it's
evolving, but it's challenging." LF

LatinFinance Roundtables are underwritten by sponsors. LatinFinance moderates the discussions and retains editorial control over
the magazine articles.

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