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LatAm Primary Market on Fire

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    11 July 2019
    Published byTellimer Research

    July is proving a very fertile month for new issues in Latin America, with several deals expected to come to market this week and next. 

    In Argentina, Telecom Argentina (TECOAR) is planning to issue a senior unsecured bond with a seven-year (non-call four) maturity, a US$300mn size, expected ratings of B+/B+ and initial price talk in the high-8% area. 

    As with the recent US$300mn, 10-year bond issued by Pampa Energia (priced to yield 9.375%), we believe these bonds are paying a premium to investors for being among the first to reopen the capital markets for credit in the country. The credits that have issued so far have been among those with the better fundamentals and business outlooks within each of their respective sectors. 

    We expect Telecom Argentina to see strong demand, and anticipate the deal printing at worst in the mid-8%s, rather than in the high 8%s. As a matter of context, TECOAR has a US$500mn, 6.5% senior unsecured bond outstanding due in 2021, rated B1/NR/B+, which trades at cUS$100.013 (ALLQ) to yield c6.49% (g-spread 464bps; z-spread 459bps). Although the duration of this bond is just 1.824 years, we believe the spread to the initial price talk suggests the final print should come tighter, as explained above.

    In Brazil, Usinas Siderurgicas de Minas Gerais (Usiminas – USIM) is set to come to market with a “benchmark-size”, seven-year (non-call four), senior unsecured bond, expected to be rated Ba3/BB-, with initial price talk in the “low-to-mid 6% area”. The company only has one bond outstanding, denominated in real, sinkable and with an outstanding amount of BRL893.5mn (of an originally issued amount of BRL1bn). 

    We believe the initial price talk is fairly aggressive and do not expect the final print to differ much from the established levels. In fact, we are not sure this deal will generate much interest from investors at the levels indicated by the initial price talk as we believe that, given where Companhia Siderurgica Nacional (CSNABZ) priced the re-tap of its 7.625% bonds due 2023 with an additional US$175mn, priced to yield 5.875%, Usiminas should offer investors a much higher premium (higher than 100-150bps wide to CSN).

    In Mexico, leasing company and non-bank-bank Unifin Financiera (UNIFIN) is expected to come to market with a US$400mn, eight-year (non-call four), senior unsecured bond due 2028, rated BB/BB, with initial price talk “in the high 8.0% area”. The company has several outstanding bonds, but we believe this new deal will be priced to UNIFIN’s US$300mn, 7.375% senior unsecured bonds due 2026, which trade at cUS$98.094 (ALLQ) to yield 7.75% (g-spread 582bps; z-spread 586bps). Given the duration of these bonds is 5.149 years, we believe the initial price talk levels reflect a spread that would be fair for the new issue; in fact, it might be a bit too generous, leading us to believe that the final print could come in closer to the mid-8% area.

    Also in Mexico, leasing company and non-bank-bank Docuformas, S.A.P.I. de C.V. (DOCUFO) rated BB-/BB-, is expected to come to market with a senior unsecured bond (subject to market conditions) to raise money to fund the tender offer of its outstanding US$150mn, 9.25% senior unsecured bonds due 2022. No initial price talk levels have been made available to us, but the bonds to be tendered trade at cUS$100.25 (ALLQ) to yield c9.15% (g-spread 733bps; z-spread 730bps). 

    The duration of the bonds is 2.808 years. We believe that, depending on the maturity of the new issue (which we expect somewhere between seven and 10 years, as this is what appears to be the “sweet spot” of new issues recently), the new issue could possibly print in the low double-digits. However, given the appetite seen this year for Mexican assets, we might be wrong and Docuformas might be able to print in the high 9%s.

    In Colombia, Empresas Publicas de Medellin (EEPPME) is planning a dual-tranche (one in USD, another in COP) with a “benchmark-size” senior unsecured tranche (Tranche A) in dollars, a 10-year maturity, expected ratings of Baa3/BBB and initial price talk in the mid-U.S.Treasury-plus-200bps area. A second tranche (Tranche B) in COP is expected to be a tap of the company’s outstanding 8.375% bonds due 2027, with initial price talk in the 8% area.

    We believe that, given the few Colombian credits that have come to market this year, the company’s strength as one of the country’s major utilities and the strong industry and sovereign fundamentals, the initial price talk levels are fair. We would expect some tightening from these initial levels, but to no more than T + 150bps.

    In Chile, LATAM Airlines Ltd (LTMCI) – with issuer ratings of Ba3/BB-/BB-, but expected issue ratings of B+/BB- – is expected to tap its 7% senior usecured bonds due 2026. The guarantor of these bonds is the LATAM Airlines Group S.A. and the initial price talk is in the “low 6%” area. The outstanding bonds amount to US$600mn, and trade at cUS$106.468 (ALLQ) to yield c5.64% (g-spread 376bps; z-spread 377bps). We believe the initial price talk is generous –the final print could come out at c6% flat.