NEW YORK, Oct 20 (IFR) - Mexican development bank NAFIN became the latest state entity to announce roadshows on Tuesday, but LatAm corporates remain firmly sidelined in the face of higher funding costs.
Two real-estate investment trusts, a Mexican white goods manufacturer and a Brazilian airline have all failed to pull the trigger on trades despite relatively benign conditions.
“I don’t see them moving forward,” said a syndicate banker away from the deals. “We had a couple of days last week that were more than open for them to go. I am guessing the all in spreads and concessions are holding them back.”
Top quality sovereigns and quasi sovereigns have been the credits of choice among investors who have taken a more defensive stance toward EM and demanded higher premiums as a result.
Bankers, for instance, had Uruguay paying a new issue concession of anywhere between 20-30bp on its new 4.375% 2027s which was priced on Monday at 99.14 to yield 4.475% or 245bp over US Treasuries.
“New issue concessions on high-quality, low-beta sovereigns have come in the 20bp-30bp range depending on size and the day,” said the syndicate banker. “That is the kind of environment we are in right now.”
With yields on the 10-year US Treasury still hovering around 2%, all-in funding cost in dollars may still be relatively low, but corporates remain unconvinced.
“Pricing expectations are not aligned between the markets and issuers,” said a second banker.
The region hasn’t seen a pure corporate dollar bond since insurance company Sagicor Finance issued in mid-August and that situation is unlikely to change anytime soon.
“I don’t think spreads are going to snap tighter,” said the syndicate banker. “So unless you see a material change in the market, I don’t see those corporates getting off the fence.”
In the meantime, LatAm credit prices were drifting lower on Tuesday, led by the Brazilian sovereign. Brazil’s 2025s have slipped back to 86.70, down about three points from last week’s levels.
This comes amid uncertainy about whether finance minister Joaquim Levy will stay in his post despite the president coming to his defense last week.
Argentine debt was also looking weaker ahead of presidential elections this weekend. Traders are not discounting the possibility of a second round that would pit gradualist Daniel Scioli against market favorite Mauricio Macri.
“A second round will be viewed positively, as it weakens the mandate of Scioli,” said Jorge Piedrahita, CEO of brokerage Torino.
Mexican development bank NAFIN will kick off roadshows this week as it looks to market a 144A/RegS green bond to international investors through leads Bank of America Merrill Lynch, Credit Agricole and Daiwa.
The state-owned bank will be in Los Angeles and New York areas on Thursday and move to San Francisco and Boston on Friday. It is expected to be rated A3/BBB+ (Moody‘s;Fitch).
Peru (A3/BBB+/BBB+) appointed BBVA, BNP Paribas and JP Morgan to arrange investor meetings in Europe from October 20 to update on the country’s financing program and discuss developments in the economy. A potential transaction may follow.
Mexican white-goods manufacturer Controladora Mabe has finished investor meetings through Barclays, Bank of America Merrill Lynch, Citigroup and JP Morgan. Ratings are BB+/BB+.
Mexican REIT Fibra Uno completed meetings with investors through Bank of America, Credit Suisse, HSBC and Santander.
Terrafina, another Mexican REIT, has finished meeting accounts as it markets a potential US$400m-$500m bond offering. The borrower mandated Barclays and Citigroup as lead managers, with Itau as co-manager. Expected ratings are Baa3/BBB-.
Brazilian airline GOL Linhas Aereas Inteligentes (B3/B-/B-) completed roadshows with Morgan Stanley, Credit Suisse and Citigroup. A deal may follow, subject to market conditions. (Reporting By Paul Kilby)