Latin Finance - June 2008 - 34

corporate debt outlook Sitting Pretty in Buyers’ Market by Ben Miller t was the fallout everyone feared from the subprime-induced liquidity crunch: a virtual shutdown of the LatAm debt capital markets. Or was it? After Usiminas and Petrobras poked through a January window opened by sovereigns Mexico and Colombia, no large dollar issues – beyond short-term deals and private placements from Brazilian banks – were rolled out until May. But was this through lack of access or lack of need? Dedicated LatAm fund flows suggest that the money is piling up for cross-border bond issuers, provided they are willing to pay the new higher going rates. However, analysts say many of them are sitting pretty, or have access to alternative sources of funds. High-yield names like Mexican auto parts maker Sanluis and Dominican resort CapCana were rejected last year. And investment grade names like Petrobras have also failed to get their price targets. But they can afford to wait owing to prudent management of balance sheets during more liquid times. In many cases, debt available from strengthening local markets has carried issuers over during the first half. “Companies have taken advantage of good times and worked on their balance sheets,” says Robert Schmieder, EM analyst and managing director at Bear Stearns. “That there is a credit crunch does not mean these companies can’t find money somewhere else.” He cites local markets, export financing deals and private placements among viable options. And a 2007 Bear Stearns survey of balance sheets and debt profiles of almost 75 LatAm corporate issuers shows that few companies would have difficulty with refinancing in 2008. “By and large issuers are comfortable,” concurs James Harper, director of corporate research at BCP Securities, speaking of the LatAm private sector. I A May thaw in debt issuance has investors hoping for a healthy pipeline in the second half of 2008. Beyond a few large acquirers, borrowers have scant financing needs. Floodgates Reopen Issuers returned in earnest during May. Mexico’s Televisa led off with a $500 million 10-year via HSBC and JPMorgan. Brazilian steelmaker Gerdau followed with a $500 million tap of its welltrading 2017s through ABN AMRO, HSBC and JPMorgan, after the Brazilian sovereign did a similar $500 million retap the day before. The average yield on a BBB LatAm bond was up to 6.13% in May, versus 5.88% a year before, according to data from Bear Stearns. This level represents a spread of 245 basis points over comparable US treasuries, up from 124 basis points a year earlier. Similarly, the average for BB bonds was at 7.45%, or 422 basis points wider than US treasuries, up from 6.95% and 223 basis points in May. Corporate Pipeline Brazilians In Need Issuer Braskem Cosan Telemar Peñoles Petrobras América Móvil Telmex Nationality Brazil Brazil Brazil Mexico Brazil Mexico Mexico Rating BB+ BB BB+ BBBBBBBBB BBB+ Funding Needs (m) $1,200 $600-$700 BRL16,000 $500-$600 $3,600 $500 $1,000 Notes Bridge loan due 2009 Acquisition finance Loans/bonds expected Refinancing Pulled $500m in Feb Maturities 2008-2009 Maturities 2008-2009 Source: Company Data, Credit Suisse, Deutsche Bank More surprisingly, Brazilian beef exporter Independência reopened highyield with a B2 rated $300 million 2015 issue via Santander and Banco Real. Others will surely follow. But what is striking is the number of companies that do not have urgent needs. Prior to the credit crunch, LatAm was on a four-year run of unprecedented liquidity and demand, during which issuers could refinance at longer terms, as well as take advantage of attractive new products like perpetuals. Borrowing conditions are not yet back to last year’s levels, says Harper, but his shop sees gradual improvement through the rest of 2008. Big Brazilian Spenders The LatAm pipeline starts with large companies making hefty acquisitions. Brazilian petrochemicals producer Braskem, for example, plans to obtain financing worth as much as $1.2 billion in order to smooth out its debt profile. It must replace a $1.2 billion bridge due 2009 raised from ABN, Citi and Calyon last year to buy a stake in oil producer Ipiranga. Braskem expects better borrowing conditions following the sovereign upgrade. It wants to mix bond and bank market sources, and may not be able to wait out the credit storm completely. “They’ve been sitting on that bridge,” notes a DCM banker. “They may 34 LATINFINANCE June 2008

Latin Finance - June 2008

Table of Contents for the Digital Edition of Latin Finance - June 2008