Latin Bond Sales to Rebound, Credit Suisse, BofA Say

Latin Bond Sales to Rebound, Credit Suisse, BofA Say

March 4 (Bloomberg) -- Latin American governments and companies will step up international bond sales in coming weeks after issuance slumped to a six-month low in February amid concern Greece will default, Credit Suisse Group AG and Bank of America Corp. said.

Sales totaled $1.8 billion last month, the lowest tally since August and down from $7.9 billion in January, according to data compiled by Bloomberg. Chile, which is seeking financing after its worst earthquake in five decades, may be among issuers to sell debt as markets open back up, said Michael Schoen, head of Latin American debt capital markets at Credit Suisse.


Issuance has begun to pick up in the U.S. corporate bond market, with high-yield sales rising more than two-fold this week, amid speculation the European Union will help Greece close its budget deficit. Latin American offerings may follow after developing nations’ benchmark borrowing costs, as measured by JPMorgan Chase & Co., fell 42 basis points from a two-month high of 3.27 percentage points on Feb. 5.

“The market was a lot tougher a couple of weeks ago than it is right now,” Schoen, who has worked in debt capital markets for 17 years, said in telephone interview from New York. “There seems to be more and more comfort that we’re getting to a reasonable place on whether there will be support for Greece.”

February issuance also slowed because companies had to complete 2009 results before tapping capital markets, he said.

“As soon as the companies update the documents with full- year numbers, you’ll see borrowing,” Schoen said.

U.S. High Yield

Latin American companies and governments raised $59.1 billion last year, the most since 2005, as the global economic recovery fueled demand for higher-yielding assets, according to Bloomberg data. Brazilian borrowers topped bond sales in the region in 2009, issuing $25 billion, as Latin America’s biggest economy was among the first to emerge from the recession.

The extra yield investors demand to own emerging-market sovereign dollar debt instead of U.S. Treasuries has dropped to 2.85 percentage points from 3.27 points on Feb. 5, according to JPMorgan’s EMBI+ index. The spread on emerging-market corporate bonds shrunk 26 basis points over that time to 3.46 percentage points, according to JPMorgan.

U.S. high-yield companies led by privately held hospital chain HCA Inc. have sold $1.98 billion of bonds this week, compared with $770 million in the same period last week, according to data compiled by Bloomberg.

Pemex, Mexico, Chile

While Latin American overseas borrowing will pick up this month, issuance this year will fall short of the record reached last year, said Augusto Urmeneta, head of Latin American debt capital markets at Bank of America.

“The market is going to revive, but it’s unlikely it will reach last year’s levels because Latin American companies are, in general, well capitalized,” Urmeneta, who has worked in debt capital markets for 12 years, said in a telephone interview from New York. “There’s going to be a decent supply of bonds coming from Mexico, not huge, and to a lesser extent from Brazil.”

Bank of America was the sixth-biggest underwriter of Latin American bonds last year, while Credit Suisse was the ninth- largest, according to data compiled by Bloomberg. Credit Suisse, Barclays Plc and Citigroup Inc. arranged a $1 billion bond sale for Petroleos Mexicanos in January. Bank of America and Citigroup managed a $1 billion issue by Mexico that month.

Chile may tap overseas debt markets as it seeks to fund reconstruction after the earthquake, Schoen said. The country hasn’t sold an international bond since 2004. Finance Minister Andres Velasco declined to comment in a Feb. 28 phone interview on how the government plans to finance the rebuilding effort.

“In Chile, maybe you see the sovereign coming on the back of the tragedy,” Schoen said. “It wouldn’t surprise me.”

To contact the reporter on this story: Veronica Espinosa in New York at vespinosa@bloomberg.net
Last Updated: March 3, 2010 23:22 EST