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Monday, 20 November 2017

Latin America Bond House: Bank of America Merrill Lynch

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Gaining market share

It was a terrible year for bankers struggling to win mandates in a region that suffered its first dramatic drop in issuance volumes since the global financial crisis. By quickly adapting to clients’ changing needs, one bank excelled above all others. Bank of America Merrill Lynch is IFR’s Latin America Bond House of the Year.

Latin America found itself at the centre of a broader retreat from emerging markets in 2015 as investors fretted about a string of looming credit risks.

Slowing economic growth in China spelt trouble for a region heavily reliant on commodity exports, while the impending threat of the US Federal Reserve’s first rate hike in nearly a decade unnerved an already volatile market.

This was only exacerbated by a widening corruption scandal at frequent issuer Petrobras, which closed the door to funding opportunities not only for the oil company itself, but other borrowers from Brazil – a country that in years past had dominated issuance volumes out of the region.

Bank of America Merrill Lynch found itself well positioned to cater to borrowers’ needs in this changing environment thanks to an integrated team that drew on expertise in lending, structured finance, liability management and derivatives.

“We have full integration and are very agnostic in what we do,” said Augusto Urmeneta, head of Latin America debt capital markets, loan syndications, derivatives and foreign exchange at BAML. “We definitely focused on grabbing market share.”

From Green bonds to liability management to euro deals, the bank took a lead on a wide range of trends in 2015, helping it leap to the top of the league table for issuance from the region during the awards period (November 16 2014 to November 15 2015).

During that period, the bank acted as lead on 28 deals that raised a total US$10.6bn to give it a market share of 14.4%.

BAML was quick to make a splash among sovereign and quasi-sovereign issuers – a sector that returned to prominence as corporates retreated and governments sought to cover growing fiscal deficits.

The bank not only led deals for Mexico, Colombia, Uruguay, Panama and Paraguay, but also excelled among quasi-sovereigns. It clinched repeat business with Chilean copper giant Codelco, grabbed a mandate for Argentina’s YPF, and secured a lead spot on a debut trade for the Panama Canal Authority.

It also closed its first trade with Jamaica, which selected Citigroup and BAML to lead its largest-ever bond sale – a US$2bn 10 and 30-year offering that allowed the Caribbean nation to retire debt owed to Venezuela at a steep discount.

This followed a similar transaction for the Dominican Republic, which selected BAML as lead on two of its deals in 2015.

Outside the US dollar market, the bank somewhat unexpectedly excelled in euro issuance, piggy-backing on its own experience with US corporates, many of which went to Europe en masse in 2015 to capture low nominal yields following the start of the European Central Bank’s quantatitive easing programme.

BAML punched above its weight against European rivals, winning euro mandates from several Brazilian issuers, some of which had never tapped this market before. These included Brazilian telco Oi, food company BRF and Votorantim Cimentos, as well Mexican cement firm Cemex.

That, combined with a long-standing liability management team, ensured that BAML maintained a solid foothold in Brazil despite declining volumes from that country.

A €600m 5.625% 2021 deal from telecoms company Oi was part of Latin America’s first corporate tender and switch – which has become popular among sovereigns seeking to retire off-the-run bonds while also creating one large benchmark security.

“In Brazil, the dialogue has been about liability management,” said Max Volkov, head of Latin America DCM.

Going green

BAML’s expertise was also brought to bear in the Green bond sector, where it took a leading role in opening up this space for Latin American issuers.

Indeed, it held a lead position on all three Green bonds out of Latin America – the region’s first such trades – a US$204m 6% secured deal for Peru’s Energia Eolica, a euro for BRF and a US dollar trade for Mexican development bank Nafinsa

With many Brazilian issuers out of commission, the bank turned its focus on Mexico. BAML led deals for a string of Mexican issuers, including the sovereign, trade bank Bancomext – its first international bond in over 10 years – Pemex’s Euroclearable local corporate bond, Kimberly Clark and tequila brand Jose Cuervo’s debt IPO.

“Volumes were small so this year we substantially stepped up coverage of countries that were not Brazil,” said Volkov.

To see the digital version of the IFR Review of the Year, please click here .

To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com .

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