Thursday, 17 January 2019

LatAm sees bond supply surge

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  • A BBVA Bancomer logo is seen on a bank branch

LatAm borrowers stormed to market Thursday, as investors welcomed four issuers looking to price US$3bn of bonds despite some significant headline risks ahead.

From Mexico, BBVA Bancomer launched a US$1bn 15-year non-call 10 Tier 2 sub note Treasuries plus 265bp - some 35bp to where it started - while autoparts maker Nemak was looking to print a US$500m 7NC3 at 4.75%, inside IPTs of 5% area.

Price tightening and healthy order books indicated investors are shrugging off uncertainty about Mexico, where July’s presidential election and NAFTA talks have created some unease.

“Those risks are in the background, but they are not keeping people away,” one banker told IFR.

“If you were to see a drop in oil, that would be a problem. But oil is doing well and acting as a nice counterbalance in the Mexico space.”

Yet while investors largely like Nemak, which is owned by the Alfa group, its exposure to a breakdown in NAFTA talks may have impacted its choice of a shorter tenor, an investor said.

“The perception was they wanted to do a 10-year at 5% area, but they ended up doing a seven-year,” the investor said. “So there was some push-back on the tenor.”

At a final yield 4.75%, the deal is coming some 20bp over the company’s existing 2023s, which have been trading at around 4.55% according to Thomson Reuters data.

“This is not pricing in any issues with NAFTA,” the investor said. “You are taking a bet that everything is going to be okay.”

BBVA Bancomer, meanwhile, was heard drawing a decent crowd, with order books reaching US$3.3bn for a rare trade for Mexico’s biggest bank.

Not only is BBVA Bancomer an infrequent issuer, but the subordinated Tier 2 notes were offering a decent pick-up to senior debt.

“It is a big increase in yield for this kind of risk,” said Klaus Spielkamp, head of fixed-income sales at Bulltick.

The bank issued a 15NC10 Basel III-compliant deal in 2014, but at the time regulations limiting the ability of non-listed companies to raise capital through hybrids prevented the lender from issuing more than US$200m.

That deal came at a spread of T+300bp and is now trading at around Treasuries plus 272bp, while its larger more liquid senior 4.375% 2024s were spotted around 133bp over, according to Thomson Reuters data.



In Brazil, which also faces a presidential election this year, investors were still looking to put cash to work in the primaries despite this week’s rout in US Treasuries.

“Everything feels good,” said the banker. “There is a buy-on-the-dip mentality.”

Rede D’Or launched a US$500m 10-year at 4.95%, the tight end of guidance of 5% area (+/-5bp) and inside initial price thoughts of low-to-mid 5%.

The debut trade from the hospital network - whose principal shareholders include the Carlyle Group, GIC and the Moli family - saw order books swell to US$3.75bn, the investor said.

But comping proved difficult, given the dearth of other hospital credits in Latin America.

Some have looked to fuel distributer Ultrapar as a possible comparable, as both businesses focus exclusively on the domestic market.

Ultrapar’s 2026s were trading at around 5%, just north of where Rede D’Or will price.

Rede D’Or has been on an aggressive acquisition spree in what remains a very fragmented Brazilian healthcare market.

Much of that has been financed through debt, but Fitch sees the company being able to keep a net adjusted leverage ratio of around 2.2x over the next three years.

“It is a brand new fresh name and fresh sector and the leverage numbers are very good,” said Spielkamp at Bulltick.

“Debut deals usually pay an extra premium, so investors are taking advantage of this opportunity.”

Beef company Marfrig is coming with its largest ever dollar deal, launching a US$1bn seven-year non-call three at 7.125%, inside IPTs of mid 7%.

“Marfrig is a credit that you either like or hate, but it is coming with a 7% handle, which is juicy enough for our market,” the investor said.


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