Bonds Latin America

Latam bond issuance continues to boom

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Latin American (Latam) cross-border bond issuance has been strong in the first half of the year, as corporates across the region prepare for large bond maturities due in 2024 and 2027,  Fitch Ratings said in a report published on Tuesday (August 3).

The total sales reached $36.8 billion in the first six months of this year, compared to $33.8 billion in the same period in 2020, with many issuers taking advantage of low global interest rates and borrowing costs.

Fitch expects issuers to refinance debt at least a year in advance of pending maturities, with the largest bond maturities due in 2024 related to Mexico’s state-owned oil company PEMEX with approximately $10.1 billion due and BVM-listed telecommunications corporation  America Movil with $4.3 billion.

Latin America’s five largest corporate issuers have $106.5 billion in  outstanding bonds through 2037. Three of the five are National Oil Companies: Mexico’s PEMEX, Brazilian oil and gas giant Petrobras and Bogota-headquartered Ecopetrol. The other two major issuers are America Movil and Chile’s
Chile’s state-owned copper producer Codelco.

Mexico ranks first in terms of concentration of cross-border bonds when compared with other Latin American countries, representing 41% of all bonds outstanding. Brazil comes second with 27%.

In a separate special report, Fitch said that Latin America’s sovereign external hard currency issuance remained high in the first half of 2021 at $37.5 billion, nearly matching the $38 billion in the same period in 2020. For comparison, the 2020 full year issuance was $57.4 billion.

Investment-Grade (IG) sovereigns which have strong market access, led issuance in the first half of 2021, according to the report. Six IG sovereigns issued bonds, representing the vast majority of first half issuance at 85%. Sovereigns continued to issue mostly in US dollars (83% of 1H21 issuance vs 88% in 1H20), followed by euros (17% and 12%, respectively).

The weighted average tenor increased to 23 years in 1H21 (1H20: 17 years), amid fears related to increases in US Treasury yields and prospective US Fed tapering around the turn of the year. Chile, Colombia, and Panama issued 40-year bonds, while Mexico’s were up to 50 years and Paraguay’s were up to 29 years, Fitch added.

Latam bond issuance
(Quarterly LAC Bond Issuance in International Markets Source: ECLAC Washington Office based on data from Dealogic, LatinFinance and Bloomberg)

Economic Commission for Latin America and the Caribbean (ECLAC) data also confirm strong expectations for 2021. Latin American and Caribbean issuers placed $52 billion worth of bonds in international bond markets in the first quarter of 2021, the region’s highest quarterly issuance on record, the UN agency said.

Many issuers covered their refinancing needs early in the quarter, with January issuance representing 59% of the quarterly total. January was the region’s third highest monthly issuance on fears of rising interest rates.

When it comes to thematic bonds – green, social, sustainability and sustainability-linked – their issuance reached a new record high o$ 16.6 billion at the end of April, a 23% share of the total amount issued in the first four months of the year, according to ECLAC.

Sustainability-linked bonds (SLB) – a forward-looking performance-based instrument – were the most used ESG instruments and accounted for 35% of the total thematic bond issuance.

Demand for Latam debt markets has remained high as investors have sought higher yields due to the US benchmark interest rate remaining at sub-zero levels. Ample market liquidity backed by significant fiscal spending, has also made investors look beyond safe havens and will likely keep demand for LatAm corporate issuance afloat.