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November 4, 2012 5:57 pm
Latin American companies have sold a record amount of bonds in the US this year as borrowers have sought to tap global investors’ appetite for higher yielding assets.
Issuance by some of the region’s largest groups, including Petrobras, Brazil’s national oil company, Chile’s Codelco, the world’s biggest copper producer and Mexico’s Mexichem, a chemical maker, has pushed total sales to a record $68.4bn, according to figures from Dealogic.
UK-based companies remain the largest foreign sellers of US dollar debt but Latin America’s sales have tripled in the past five years.
Latin American companies are attracted to the US market because of its record low borrowing rates, which compare favourably with higher rates in their home markets, and also by its huge pool of long-term investment funds.
In Brazil, the local benchmark Selic rate remains at 7.25 per cent, limiting the development of a market for large bonds of more than five to seven years in tenor, analysts said.
In addition, while liquidity in local debt markets has been rising steadily, the US is still a better option for the combination of long-tenor and large issuances, such as Petrobras’s $7bn bond earlier this year. That issue marked the largest debt offer for a Latin American company in the US.
“It’s been a nice alignment this year for Latin American borrowers,” said Sabur Moini, a high-yield portfolio manager at Payden & Rygel, which also invests in Latin American bonds. “Long-term funding costs [in the US] are much lower than in Latin America, and the pool of investors is diversified. On top of it, there’s tons of liquidity and US investors are looking for yield and news names for their portfolios.”
Foreign companies’ reliance on the US dollar market has gathered pace this year amid a sovereign debt crisis in Europe and a slowdown in Asia. The volume of so-called “Yankee” bond issuance, in which foreign issuers sell dollar-denominated debt in the US, has jumped 11 per cent so far this year to about $620bn, according to Dealogic.
For investors, the bonds’ high coupons and double-digit returns offer an alternative to lower-yielding US corporate debt.
Most of this year’s corporate debt sales from Latin America have come from investment-grade companies, with average yields above 4 per cent and year-to-date returns of 12.4 per cent, according to JPMorgan data. That compares with yields of 2.7 per cent and a 4.06 per cent return for US companies with similar ratings, according to Barclays.
“Many of these Latin American bonds offer double-digit coupons, and some have better credit ratings than their US peers,” said Mr Moini. “As long as you know the companies you are buying into, you can’t beat those numbers.”
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