RIO DE JANEIRO, BRAZIL – Latin American companies are preparing a large volume of speculative grade bond issues to capitalize on investor demand in one of the few regions that is still offering yields.
At least three high-yield bond issuers are preparing sales, with potential issues from companies such as Marfrig Global Foods and WOM Chilean mobile operator.
Companies are seeking refinancing after Latin American debt bond yields fell to 4.35% from last May’s high of 13%, while investors are seeking higher returns than offered in other emerging markets and US$16.4 trillion in negative yield global debt.
“Latin America is where income is being offered, which is why investors are basically migrating there,” said Soummo Mukherjee, senior credit analyst at Lucror Analytics.
Itaú Unibanco sold US$500 million in bonds on Tuesday with a yield of 3.95%, while FS Bioenergia used bonds maturing in 2025 to sell another US$50 million with a yield of 8.352% on Monday, according to Lucror.
Fitch awarded a BB rating for a potential US$1 billion Marfrig issue, while S&P Global Ratings rated the bonds from the expected sale of up to US$450 million from WOM with a B+. Logistics company Simpar has begun meetings with investors, which will probably be followed by a dollar-denominated bond as early as Thursday.
Companies with high yield and financial bonds may sell up to US$45 billion of the total US$75 billion in Latin American corporate bond issues expected this year, according to data compiled by JPMorgan Chase. It would be the largest volume for junk, or high-risk, issuers since at least 2017, according to the bank.
The industry is poised for a strong year in 2021, and could do better than investment-grade bonds, said Natalia Corfield, head of corporate credit research for Latin America at JPMorgan.
The bank recommends some lower-rated credits, such as Banco do Brasil’s perpetual bonds, Cemex bonds maturing in 2027 and AES Gener’s 2079 bonds; all offer yields of 5% or more, according to data compiled by Bloomberg.
According to Corfield, Latin American high-yield bonds performed worse in 2020 and have more room for appreciation in 2021. “But we are being very selective,” she said. “We are not recommending everything with higher yield”.