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Yet more LatAm issues to keep investors busy

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    8 January 2020
    Published byTellimer Research

    More new issues are coming to the LatAm bond markets, continuing the very dynamic start to the year.

    Today, it is the turn of Mexico's Coca-Cola FEMSA (KOF) – the largest bottler and distributor of Coca-Cola products in the world outside the US. This is one of the few companies that is rated better than the sovereign, at A2/A-/A- compared with Mexico's rating of A3/BBB+/BBB, and has several bonds outstanding that typically price to the sovereign rather than to industry comparables.

    KOF is expected to price today a benchmark size (we expect at least US$1bn) in senior unsecured bonds with 10-year maturity and initial price guidance of T + 125bps. We believe this is attractive but expect the bonds to price tighter (as has been the case with other recent high-grade issues). The proceeds will be used to tender for the US$900mn 3.875% bonds due 2023 that are trading at cUS$107.25 (ALLQ) to yield c1.92% (g-spread 34bps; z-spread 33bps).

    The company's longer bond, its US$600mn 5.25% senior unsecured bonds due 2043, trade at cUS$124.967 (ALLQ) to yield c3.67% (g-spread 152bps; z-spread 175bps).

    We believe the new KOF bonds could price as tight as T + 110bps to T + 115bps, particularly given that the recent US$1.75bn 3.25% 10-year Mexico bond priced at US$99.468 to yield T + 150bps.

    In addition, Chile's Empresas CMPC through its subsidiary Inversiones CMPC (CMPCCI), will today confirm the issue of US$500mn of 10-year senior unsecured bonds (rated Baa3/BBB-/BBB). Initial price guidance is T + 225bps.

    For comparison purposes, the company's US$500mn 4.375% senior unsecured bonds due 2027 are trading at cUS$105.894 (ALLQ) to yield c3.45% (g-spread 172bps; z-spread 178bps). We think the pricing of the new issue will also be tighter, perhaps in the T + 200bps area.

    Meanwhile, and as an update to yesterday's report on Chilean new issues, Banco Santander Chile (BSANCI) has printed US$750mn of senior unsecured bonds due 2025 with a 2.70% coupon for a spread of T + 108bps. Initial price guidance for was T + 130bps.

    Similarly, Corporacion Nacional del Cobre (Codelco, CDEL) yesterday priced its two-tranche issue. Tranche A: US$1bn (as expected) with a 3.15% coupon priced at US$99.787 to yield a spread of T + 135bps (initial price guidance was T + 150bps). Tranche B: US$1bn (we were expecting this tap of the company's 3.7% bonds due 2050 to be US$500mn) at a spread of T + 165bps (initial price guidance was T + 180bps).

    These issues provide further evidence that there is strong demand for high-quality paper from the region, leading to final spreads, in some cases, to be substantially lower than initial guidance. This is likely to prompt even more issuers to come to the bond markets in the short term.