Fee-hungry Western bankers are scrambling to execute Latin
corporate deals in the wake of Brazilian mining giant
Vales E750 million bond issue.
The regions economic growth has unleashed a tide of
investor interest, but the jury is out about whether the supply
of cross-border deals from Latin companies will meet
Thanks to a strong 8 billion orderbook, Vale
priced its debut eurobond on Wednesday to yield a slender
4.441% 20 basis points cheaper than its existing dollar
The strong demand and competitive pricing for the deal,
rated Baa2/BBB+/BBB-, highlights the strong appetite for
Brazil, bankers have said. In the coming weeks, Petrobras,
utility firm Eletrobras, and conglomerate Grupo Votorantim
who are all working on big capex programmes could
tap euro markets to diversify their borrowing, bankers
Such deals may revive primary markets, which took a took a
breather in February due to the global market sell-off
triggered by the Greek debt tragedy.
So far this year, Latin borrowers have issued only $10
billion of external corporate bonds compared with a record $45
billion last year.
Latin firms dont have large funding needs this
year, as many firms have already prefinanced or refinanced
their funding needs, Augusto Urmeneta, head of Latin
American capital markets at Bank of America Merrill Lynch, told
According to Dealogic, global investment banks made $1.5
billion in fees from executing debt and equity deals,
syndicated lending and M&A in 2009, compared with the 2007
bull run of $2.5 billion. By contrast, only $250 million has
been made so far this year.
Urmeneta said mergers and acquisitions and large capex needs
of industrial borrowers will drive debt and equity issuance in
the region, rather than vanilla capital-raising by firms
seeking to refinance existing debt.
For example, Mexicos America Movil SABs $25.7
billion acquisition of Carso Global Teleco earlier this month
was the largest in the region this year and the second biggest
But Chris Gilfond, head of Latin America debt at Citigroup,
said a 40% reduction in US corporate bond supply this year will
trigger demand from international investors for Latin corporate
debt, which will spark strong primary market activity.
The valuation gap between Latin debt and developed
corporates is very compressed, giving issuers from the region
access to competitively priced capital with which to grow
organically or through acquisitions.
Brazilian companies are capitalizing on their balance sheet
strength, and growing domestic consumption and industrial
production, to go on an acquisition spree locally and