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Saturday, 18 November 2017

Latin America Bond House: JP Morgan

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A turn for the better

It was a mixed year for Latin America’s debt markets – one of record issuance and ongoing crises. One bank positioned itself nearly perfectly to take advantage of the circumstances and beat its competitors. JP Morgan is IFR’s Latin America Bond House of the Year.

JP Morgan outgunned its rivals in 2016 to win top spot in the league tables for the IFR awards period. The bank led 39 issues from 10 countries – the most among the banks jostling for business in the region.

Many of the deals were marquee transactions, including Argentina’s US$16.5bn return to the international markets, Colombia’s first euro bond in 15 years and the US$2bn deal for Mexico City’s new airport – the largest Green bond ever out of Latin America.

Yet while DCM activity took a surprise turn for the better in 2016, prospects had looked bleak at the start of the year.

Oil prices were tumbling, and Brazil – the region’s main source of issuance in years past – was sinking further into recession.

One bright spot was Argentina, where market favourite Mauricio Macri had won a surprise victory in the November presidential elections.

But even there, challenges abounded as aggressive litigant investors held the government’s feet to the fire in what was a decade-long battle over debt payments.

JP Morgan was thinking ahead, however, after having lost considerable market share in 2015. The bank’s DCM team rethought its strategy and widened the product mix to better reflect the tougher circumstances on the ground.

Making good use of expertise in their broader global team, JP Morgan was able to win business among corporates that were often seeking to mend balance sheets rather than issue new debt for growth.

“[We knew] this was going to be a year in which balance sheet repair trades, restructuring deals and some infrastructure financing would add to the mix of plain vanilla business,” said Lisandro Miguens, head of Latin America debt capital markets at JP Morgan.

This was particularly true in Brazil, where JP Morgan won a seat at the table on restructurings for sugar company USJ and airline Gol.

JP Morgan was also hired as an adviser for Samarco – the joint venture between BHP Billiton and Vale – as the company sought to renegotiate its debt in the wake of a deadly dam disaster.

The bank served as lead on two deals from Petrobras as the oil company at the centre of a wide-ranging corruption scandal looked to address a wall of looming maturities.

In June, Petrobras became the first Brazilian company to sell debt internationally in roughly a year, taking advantage of improving sentiment towards the country to come with a multi-tranche US$6.75bn bond sale and tender.

And while the secondary performance caused consternation among investors at the time, leads were able to come back just two months later with a US$3bn deal that also took out short-term maturities and eased immediate refinancing risks.

“The execution risks on these deals were gigantic,” said Miguens. “[Petrobras] faced huge amortisation towers, and this gave them breathing space.”

JP Morgan was also well placed to take advantage of the pivotal turn in sentiment that took place in February.

It reasoned early on that Latin American economies were starting to turn a corner, and that political changes in Argentina and Brazil were likely to bolster sentiment.

Investors were more than ready to put money to work in a region that produced very little supply in 2015 but offered attractive relative value.

“We started pitching our clients to get ready, as this was about to get better,” said Miguens.

JP Morgan delivered that advice to Argentina’s new finance team in December, as the government mulled how best to pay holdout investors who had effectively kept the country locked out of the international capital markets for years.

Confident that demand existed for a multi-billion dollar bond deal, the bank advised the sovereign to pay in cash rather than use new bonds with double-digit coupons.

And JP Morgan ultimately won the mandate for Argentina’s historic return to the market.

To see the digital version of this review, please click here.

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

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