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Commodity uplift driving Latin America’s debt revival

After a quiet spell in the debt markets, Latin American issuance is again picking up as a result of rising commodity prices and regime changes among other factors. But market activity is not evenly distributed, with many Brazilian corporates such as Gol Linhas Aereas struggling to find funding that Argentine and Mexican issuers enjoy access to.

Jun 3, 2016 // 5:13PM

Debt issuance across Latin America is on the rise, with issuers such as Brazilian meat producer Marfig and Colombia’s Banco de Bogota coming to the markets with a US$750mn and a US$600mn bond respectively, to name a couple.

Latin America’s debt ‘revival’ seems to be driven by a number of factors including a partial rebound in commodity prices (with oil hovering around US$49 per barrel), regime changes in Argentina and Brazil, and continued accommodative central bank policies (particularly in Mexico).

“The success of the much anticipated Argentine deal added investor focus to the region and yields are still high relative to other investment opportunities in other emerging markets,” said Luis Olguin, Portfolio Manager of Emerging Market Debt at NN Investment Partners. The region is also more positively viewed by investors due to an improved outlook on China and commodity prices.

Still, political factors in some countries could dampen DCM activity across the region.

“In the near term there is a lot of focus and hope for the new governments in Brazil and Argentina. If these governments stumble, investors may be wary of injecting new capital into the region unless yields rise again. Another round of corruption scandals in Brazil could slow momentum.”

“In the long term, however, we believe the commodity cycle will likely drive the capital requirements for the region,” he added.

Olguin said rising commodity prices will to some extent offset concerns over increasing leverage and political factors that have affected countries such as Brazil.

“On a sector basis, quasi-sovereign credits have seen the most activity,” Olguin noted.  “We have also seen a pickup in issuance in euro-denominated transactions”

While Argentina’s US$16.5bn bond dominated sovereign issuance, corporate issuance has been limited across Latin America, with Mexican entities proving to be the most active. Argentine provinces and other quasi-sovereigns are also coming to market and have been well-received, and corporate issuance from the country is also picking up.

Americas Macro

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