Issuers from Latin America have taken advantage of the improvement in the international debt capital markets following the US Federal Reserve’s decision not to taper its $85 billion monthly asset purchase programme.
The decision, which was contrary to most observers’ expectations, was seized upon by issuers either seeking fresh capital or those keen to lengthen and lower their debt profiles through liability-management exercises.
“It was like a Christmas gift and completely unexpected,” says Max Volkov, managing director of Latin America debt capital markets at Bank of America Merrill Lynch. “In the last two weeks of August and the first week of September [10-year US] treasuries had gone from 2.68% to 3% and people were drawing negative conclusions about it going to 3.5% or 4%.”
Although the interest rate environment is still higher than earlier in the year, Volkov says issuers have shifted to a new perspective. “They realize the markets we saw in April aren’t coming back,” he says. “We aren’t going to see 10-year treasuries at 1.5%, 1.6% or 1.7%; they will be at least 100 to 150 basis points wider. But if you have to face a new reality [you recognize that] interest rates are still lower than they have been historically.” Volkov contrasts today’s 10-year treasury rate of 2.65% with September 2008’s, which was between 3.5% and 4%. In 2007 the 10-year treasury rate was 5.5%.
Deutsche Bank brought both Colombia and Brazilian development bank BNDES to market the day after the Fed’s announcement. “We knew that the FOMC announcement on Wednesday was key to the rates market one way or another – obviously the outcome was a lot better than the market consensus and we clearly saw a great opportunity for these two high-grade issuers,” says Alberto Ardura, head of Latin America capital markets and treasury solutions for Deutsche.
Many others followed, including a strong theme of liability management exercises at UMS, Arcos Dorados and Cemex.
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