NEW YORK, Jan 4 (IFR) - Three Latin American issuers
announced roadshows on Wednesday, kicking off what is expected
to be a busy January for the region's new issue market.
Honduras, Argentine power generator Genneia and Brazilian
pulp and paper company Fibria are already preparing dollar bond
sales next week and more are likely to follow.
Sovereigns such as Argentina, Chile and Paraguay are heard
eyeing the dollar markets, while Brazil is reportedly
considering a euro trade as well.
Among corporates, state-owned oil companies like Argentina's
YPF and Brazil's Petrobras will also likely move forward with
deals in coming months.
"I would expect issuers to start tapping under current
market conditions ahead of what could be a volatile 2017,"
Ricardo Navarro, a portfolio manager at asset management firm
Noctua, told IFR.
After a rocky November following Donald Trump's surprise
electoral victory in the US on November 8, Latin American credit
spreads have been steadily grinding tighter.
The reference spread on JP Morgan EMBI Global Diversified
Index is now back at 339bp after spiking to a recent high of
383bp in the week following the US election.
The cost of protection in Brazil - which has been struggling
to emerge from its worst recession in decades - has also enjoyed
The sovereign's five-year CDS, for example, was trading at
263bp on Wednesday, dropping from a recent high of 326.5bp on
November 14, according to Thomson Reuters data.
Investors and issuers have found some comfort in some of
Trump's cabinet picks, a more stable Treasury market and rising
oil prices, which have been supportive for the commodity
With billions of dollars in financing needs this year,
Argentina is likely to waste little time and could well set the
tone for the month ahead.
Local press is already reporting that an up to US$10bn deal
could come as soon as January 10, and Finance Minister Luis
Caputo has been quoted saying the company needs to raise over
US$40bn this year.
While the sovereign should find a receptive audience for its
bonds, investors will be more circumspect this year as the
government struggles to reinvigorate the economy.
In December, President Mauricio Macri fired his former
Finance Minister Alfonso Prat-Gay, the man credited with master
minding Argentina triumphant return to the bond markets last
The abundance of sovereign issuance last year also hasn't
sat well with some investors who thought that the government had
gone back on promises to issue just once in 2016.
"They damaged their reputation for failing to keep their
issuance goals in 2016," said Sean Newman, a senior portfolio
manager at Invesco. "There is a credibility gap they need to
Yields on the country's 7.5% 2026 have been inching higher
since the beginning of the year and as of Wednesday stood at
"They will need to come at least 50bp back to the curve,"
said Newman. "They have to come to cheap (with the market)
knowing another US$12bn could come behind it."
Another jumbo issue could come from Petrobras which still
needs to term out debt maturities, and has long been rumored to
be eyeing another bond sale.
"Everyone expects them to come in January," another investor
told IFR. "They may be waiting to increase (domestic) fuel
While the oil company fell short of its divestment target to
raise US$15.1bn, investors largely feel the company is heading
in the right direction, and is still seen as cheap to the
Petrobras's 8.75% 2026 is trading at a G-spread of around
498bp versus a G-spread of about 298bp on Brazil's 6% 2026.
"People want to buy this stuff as it is liquid," said a DCM
banker. "Its 10-year is trading 200bp back to the sovereign and
people feel it could come in some more."
Many issuers as such are being encouraged to tap ahead of
any potential rate jolts and before possible upsets once Trump
takes office on January 20.
"Come January 20 when Trump becomes president people will
decide quickly whether these prices are justified," Navarro
(Reporting By Paul Kilby; editing by Shankar Ramakrishnan)