Regional Themes
Negotiations between Canada, the US and Mexico over NAFTA boiled over before the labour day holiday as tensions surrounding labour pay disparity came into focus. Mexico's political and corporate leaders have long argued that the trade agreement should help bring labour wages in line across the three signatories. Jerry Dias, National President of Unifor, a Canadian union, told a press conference this weekend that NAFTA "if labour standards aren't a part of a trade deal, then there shouldn't be a trade deal."
HSBC has reached an agreement to refer some of its Latin American private banking clients, primarily in Central America and the Andean region, to Switzerland’s UBS, Reuters reported. The agreement completes HSBC’s efforts to streamline its private banking business, a process which has resulted in a number of disposals in recent years.
Paraguay plans to join Argentina and Uruguay in a regional bid to host the centenary World Cup in 2030, the President of the South American football association CONMEBOL, Alejandro Dominguez, confirmed this week. If secured, the move could spur billions of dollars in new infrastructure projects for the countries and attract new foreign investment.
The Mexican government issued a statement last week in response to American government's decision to rescind the Deferred Action for Childhood Arrivals (DACA) programme, which could negatively impact up to 800,000 undocumented immigrants who arrived in the country - mostly as children - from Mexico among other countries. DACA recipients are undocumented immigrants who arrived to the US as children and qualified for temporary work permits that would prevent them from deportation and offer a path to citizenship. The US government announced this week that it would stop accepting new applicants to the project. Mexico's Secretariat of Foreign Relations said it could not ignore the fact that thousands of Mexican citizens will be "potentially affected by the decision," and said it would maintain "a permanent dialogue with the Legislative Branch" of the US to find a more permanent replacement for the programme.
Mexico
Mexico has yet to face any credit implications following a 8.2 magnitude earthquake affecting the south west of the country, according to a note from Moody's. The earthquake has left more than 90 people dead. "The federal government will provide most of the funding for the reconstruction of the affected areas and the state of Chiapas already qualifies to receive resources from the Mexican natural disaster fund (Fonden)," said Moody's analyst María del Carmen Martínez Richa. Last week there was speculation that the earthquake could trigger a world-bank backed catastrophe bond issued by the country earlier this year. Mexico's Finance Minister Jose Antonio Meade said the country was analysing the quake's impact on the bond on Friday. A raft of Catastrophe or CAT bonds could be affected by Hurricane Irma, according to a report this week from S&P.
Bank of Mexico lifted its 2017 and 2018 growth forecasts for the country, noting that inflation has begun to peak. In its second-quarter inflation report, Banxico said the “balance of risks for growth has improved due to the perception that the probability of the most extreme downside risks materialising has diminished”. It nudged up its 2017 growth forecast to 2-2.5%, from an earlier goal of between 1.5-2.5%. For next year, the Central Bank increased its forecast to between 2-3%, from an earlier 1.7-2.7% range.
Pemex is looking for partners to help develop a new offshore field, the Nobilis-Maximino, which is expected to generate up to 174,000 barrels of oil per day at its peak. According to Reuters, the project is expected to cost up to USD10.7bn to develop.
Toyota’s Mexican branch will tap the local markets with a fix-rate bond worth MXN2.5bn. The 5-year notes will carry an interest rate of 7.87%, according to a regulatory filing. BBV Bancomer and Banorte acted as lead arrangers, while Citibanamex, HSBC, Santander and Scotiabank acted as joint bookrunners for the transaction.
Ford Credit Mexico tapped the local markets with a two-year bond worth MXN1.5bn. The notes will carry an interest rate of 7.87% and were rated AA+ by Fitch Mexico. Citibanamex, BBVA Bancomer and Scotiabank managed the transaction.
Banobras, a Mexican development bank, raised MNX10bn (USD559mn) with a dual- tranche green bond. The lender raised MXN4bn in seven-year fixed notes at 4bp over 6.78%. The 2020 floating rate paper worth MXN6bn was priced at 3bp over the 28-day TIIE rate. The bond was rated AAA by both the local branches of Moody’s and Fitch Ratings.
Leftist presidential candidate Andrés Manuel López Obrador has vowed to revise all oil contracts awarded under the country’s energy liberalisation to ensure they are free from corruption and in the national interest. “We’ll intervene swiftly and we’ll revise the contracts,” the candidate told a seminar organised by the Wilson Center and the Inter-American Dialogue in Washington. “I know some people won’t like this, they want things to stay as they are. I couldn’t do that, because I don’t have confidence in those who subscribed them for Mexico.” Mexico opened up an oil sector closed for nearly eight decades under a 2013 reform.
Mexico City's new airport is said to be looking for another USD2bn in funding and is meeting with investors ahead of a potential US dollar denominated issuance. Citigroup, HSBC and JP Morgan are said to be leading the transaction, which could see GACM - the company developing the airport - execute another green bond to follow on from its debut last year.
The federal government inked a deal with Alibaba Group Holding Ltd to boost the presence of small Mexican retailers on the e-commerce platform. The deal was signed as Mexican President Enrique Pena Nieto wraps up his trip in China following a conclusion of a meeting between BRICS trade bloc members and associate / observer members.
Brazil
Brazil's Central Banks proposed to bar fintech companies from taking deposits from borrowers, part of a new set of rules aimed at regulating the burgeoning sector. The rules will be debated in public hearings over the next three months, and will not require congressional approval to pass in their current form.
The lower house of Congress rejected amendments to a bill that introduces a new market-based benchmark rate for state lender BNDES. The bill is likely to be voted upon by the September 6 deadline, when the current legislation expires. The proposal would help reduce discretionary subsidies through BDNES' lending. It did, however, pass a law last week that will ease access to secured loans, potentially giving a significant boost to credit access in the country, according to Valor, a local newspaper. The new laws could help generate up to BRL480bn (approx. USD153bn) in new credit by allowing companies to register receivables and legal guarantees as collateral for loans.
State-run oil company, Petroleo Brasileiro SA (Petrobras), has signed a strategic agreement with the China Development Bank this weekend, according to local press. The deal will see Petrobras look to bolster its financial ties to mainland China. Petrobras already has a USD10bn line of credit with the China Development Bank, which is guaranteed against Brazilian oil exports, but the new agreement will also cover equipment leases and look at disbursing up to UDS5bn from the original credit line.
The country’s telecommunications watchdog is still determining whether to remove the operating license of embattled operator Oi SA, a move that could further delay the country's largest bankruptcy case to date, according to a report from Reuters. The news has given analysts and creditors cause for concern as the company looks to negotiate a restructuring plan that would allow it to continue operating in the country.
Somos Educação SA, a local publisher, is looking to raise up to BRL800mn (approx. USD254mn) through the sale of a dual-tranche debenture in the local capital markets. The company will sell BRL200mn in local notes due 2022 and BRL600mn in notes due 2020. Banco Itau BBA is coordinating the sale, according to a regulatory filing.
Companhia Securitizadora de Creditos Financeiros Cartoes Consignados Bmg (BMG) is looking to raise BRL498mn (approx. USD158mn) through the sale of debentures in the local market. Sale of the notes due 2022 is being coordinated by XP Investimentos CCTVM.
The state of Rio de Janeiro should start receiving bank loans within 30 days under a financial rescue program signed on this week with the federal government, Finance Minister Henrique Meirelles said quoted by Reuters. State development bank BNDES will coordinate the credit facilities
New covered bond regulations in the country have been given the thumbs up from Moody's this week. The credit rating agency said the new rules, which will allow the country's lenders to issue mortgage-backed covered bonds and introduces new tax incentives for domestic and foreign investors, could help lenders double the amount of home loan disbursements. “As Brazil pulls out of its recession, low inflation and single-digit policy interest rates will stimulate banks to increase lending activities, primarily focusing on less risky segments such as housing," Moody's said in a recent note.
Caixa Econômica Federal announced it would reduce interest rates on loans for the agricultural sector. As of September, some rates that were 7.5% per year will be trimmed to 6.7% in the coming weeks, while other loans yielding 8.5% or higher could qualify for a 1% cut to their interest rates. The move is intended to stimulate further domestic agricultural production.
Suzano Papel e Celulose S.A.'s (Suzano) is looking to reopen its 2026 and 2047 senior unsecured notes in a bid to raise an extra USD300-400mn from investors. Proceeds from the sale will be used to repurchase up to USD100mn of the company's 2021 notes. The company is looking to extend the maturity profile of its debt.
Brazil is unlikely to reform its costly pension system before 2019 because President Michel Temer is too weak to push the measure through Congress, the chief economist of Brazil’s largest bank said this week. “The government’s ability to set the legislative agenda weakens if it has to use political capital for other ends,” Itaú Unibanco Chief Economist Mario Mesquita told Reuters. “Our baseline scenario no longer considers that the pension reform will be approved this year or the next,” he said.
Brazil expects to raise nearly BRL2bn in 2018 with the concession of an instant lottery unit, a government source told Reuters. The estimate is approximately twice the value of the minimum bid of BRL922mn.
Brazil’s Central Bank said on this week it preferred a gradual end to interest rate cuts in the coming months, instead of bringing the cuts forward, in order to facilitate communication and collect more data about the economy. The minutes of the Central Bank’s monetary policy meeting suggested policymakers believe inflation has undershot the government’s target, in large part because of lower food prices. The bank last week cut its benchmark Selic rate by 10bp to 8.25%, a four-year low.
Klabin, a Brazilian paper company, issued international bonds worth USD500mn with a 4.875% coupon. The ten-year notes were sold at a price of 99.414% with an initial yield of 5.01%. Bank of America Merrill Lynch, Citigroup, Itau Unibanco Holdings, Morgan Stanley and Banco Santander managed the transaction.
The Brazilian real plunged as a Supreme Court judge authorized another investigation into beleaguered President Michel Temer for suspected corruption. Justice Luis Roberto Barroso authorized the investigation of Temer on suspicion of graft charges involving a decree regulating ports, adding to the list of scandals surrounding the Brazilian leader. Brazil’s currency posted its biggest daily drop in nearly a month, slipping 0.8% against the U.S. dollar.
A tax overhaul in Brazil may not have political support, and the government should focus on changing pension laws in Congress, Planning Minister Dyogo Oliveira said quoted by Reuters. “There are no conditions to push two reforms of this magnitude through Congress at the same time,” Oliveira told journalists after an event in Sao Paulo.
Argentina
The country’s Finance Minister Luis Caputo said the Inter-American Development Bank (IADB) is likely to lend more than the USD6bn committed to the country by the multilateral lender between 2016-19, according to a note in Reuters. The IADB is nearing its targeted lending volumes already, having disbursed USD1.2bn, USD2.3bn and USD2.25bn in 2016, 17 and 18, respectively, the IADB President said at a joint press conference with Caputo this week.
Argentine subsidiary of Brazil's Intercement, Loma Negra, is looking to raise up to USD100mn by listing on the New York Stock Exchange and in Buenos Aires, according to a report in Reuters. According to a filing with the US SEC, Morgan Stanley, Banco Bradesco, Bank of America, Citigroup, HSBC, and Itaú Unibanco Holding are underwriting the transaction. Proceeds from the transaction will go towards reducing the company's debt.
The Central Bank of Argentina (BCRA) revised rules related to tax documentation and payments in a bid to speed up payments. The measure, which came into force last week, will allow the public to present tax returns to banks without certification from authorised public accountants.
Uruguay
Uruguay’s Vice President Raul Sendic has resigned ahead of a meeting to discuss potential misuse of corporate funds during his time as chairman of Ancap, the country's state-owned oil firm. Sendic's resignation, first reported by El Pais, comes after the party investigated his management of Ancap, with rising speculation that he misused corporate funds while heading the firm.
Peru
Peru is planning to issue up to USD6bn in local and international bonds in 2018, the government said this week. The budget for the 2018 fiscal year will see a 10% increase on the previous year's figures, with much of that being used to help finance reconstruction in the country following severe flooding.
An investigation into Peruvian opposition leader Keiko Fujimori's links to Odebrecht has been launched by the country's attorney general, Fujimori’s attorney said last week. Fujimori, the daughter of former leader Alberto Fujimori and twice-defeated presidential candidate, took to Twitter to claim her innocence. “I’m certain the investigation will confirm that Odebrecht did not give us any money,” Fujimori said on Twitter. “I’ve always collaborated with all investigations and this will not be an exception.” The effects of the wide-reaching Odebrecht scandal are still being felt in Peru, causing a massive slowdown in infrastructure development after the government was forced to re-tender a range of projects linked to the embattled construction firm.
Public investment in the country, particularly at the sub-national level, is expected to double through 2018 as the country continues to rebuild following Coastal El Niño flooding earlier this year. The country's Multiannual Macroeconomic Framework (MMM) forecasts public investment growth to reach 7.5% in 2017, and soar to 17.5% in 2018.
San Miguel Industrias, a local manufacturer, issued international bond worth USD300mn with a 4.5% coupon. The 2022 notes were sold at par with an initial yield of 4.5%. Bank of America Merrill Lynch, Citigroup and JP Morgan manged the transaction.
Venezuela
The second largest clearing house in the US, Depository Trust & Clearing Corp., said it would no longer settle Venezuela bond trades in direct response to uncertainty over future US sanctions on the struggling Latin American country. In a note published on the company's website, it said it would no longer allow Venezuelan bonds - including PDVSA notes - to change hands. Last week, the US government imposed new sanctions preventing US investors from buying newly issued Venezuelan debt or equities, but the Depository Trust & Clearing Corp. seems to be applying a ban on all Venezuelan securities including those issued before the August 2017 cut off imposed through the sanctions. The move could add pressure on other clearing houses and financial institutions to follow suit.
Rating agency Fitch pushed Venezuela deeper into junk territory on Wednesday, saying a default is “probable” after a fresh wave of sanctions have reduced the government’s financing options even more. Fitch dropped the heavily indebted South American country’s rating one notch to CC from CCC.
Fitch lowered its long-term ratings on six of the country’s largest lenders from CC to CCC this week, following a similar downgrade on the sovereign. The rating agency said that a sovereign default was now probable. The most recent downgrade affects Banesco, Banco Universal, CA (BBU); Mercantil, C.A. Banco Universal (Mercantil); Banco Occidental de Descuento, Banco Universal C.A. (BOD); Banco del Caribe, C.A. Banco Universal (Bancaribe); Banco Exterior, C.A. Banco Universal (Exterior); and Banco Nacional de Credito C.A. (BNC).
Chile
In an unprecedented move, Chile's entire economic team including Finance Minister Rodrigo Valdes, his deputy Alejandro Micco, and Economy Minister Luis Carlos Cespedes resigned. The move came after years of dwindling growth, a credit rating downgrade, and policy uncertainty, and was catalysed by split in the Cabinet over a decision to block a USD2.5bn iron-ore project in the northern part of the country. The Dominga project has faced strong criticism in recent weeks over its failure to adhere to strict social and environmental parameters. Valde, who was ciritical of the decision to block the project, will be replaced by Nicolas Eyzaguirre, an economist and former finance minister. The resignations come amidst a slew of reforms being pushed through by the Bechelet government in the run up to the election later this year.
The Spanish lender BBVA announced it was looking at the possible sale of its retail bank in Chile after Canada’s Bank of Nova Scotia expressed an interest in buying up to 100%. BBVA has a 68% stake in BBVA Chile, while 29% belongs to the Chilean family Said and the rest of the shares are in free float.
State-owned Empresa Nacional del Petroleo (Enap) issued international bonds with a 4.5% coupon for USD600mn maturing in 2047. The notes were sold at a price of 97.13% with an initial yield of 4.73%. Bank of America Merrill Lynch, Citigroup and JP Morgan arranged the deal.
Chile's peso posted its biggest daily drop in four months as traders questioned whether the copper rally that has underpinned the currency's upswing was justified. The peso weakened more than 1% to CLP620 to the dollar, snapping a string of four straight days of gains but still near two-year highs. The drop came on the heels of a decline in prices of copper, as traders booked profits on a 20% surge that began in June.
Panama
Panama’s GDP grew 5.8% in the first six months of 2017, the government announced. The growth rate was driven by Transport and Communications sector, which includes the Panama Canal activities, that increased 12.6% during that period. The service sector grew 4.7% while the construction sector grew 8.1%.
Banistmo, a local lender, issued international bonds worth USD500mn with a 3.65% coupon. The notes maturing in 2022 were sold at a price of 99.778% with an initial yield of 3.73%. JP Morgan and Morgan Stanley manged the deal.
