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NEW YORK, Jan 13 (IFR) - Latin America primary markets are bracing themselves for a supply surge in the coming weeks, including a multi-billion dollar offering from Argentina, as borrowers raise funds while the going is good.
This week alone saw more than US$7bn in international bond issuance out of the region from seven borrowers, the best week for the asset class in months - and more is on the way.
Investors have money to put to work following a long issuance drought.
And relatively benign flows - despite expectations of heavy redemptions after Donald Trump's surprise electoral victory in November - have only heightened risk appetite.
"There has been a lack of supply and it seems that Wall Street is doing what it does best, which is feed the machine," said Dan Senecal, an emerging market credit analyst and portfolio manager at Newfleet Asset Management.
The eclectic group of issuers that has tapped the market of late underscores the overall bullish tone, with off-the-run sovereigns such as Ecuador and Honduras - and debut credits like Argentine utility Genneia - printing bonds.
There was certainly healthy appetite for LatAm debt, with Brazilian oil firm Petrobras seeing more than US$20bn of orders for its US$4bn two-parter this week, in what was the region's first issue of 2017.
"The subscription was huge on Petrobras," said a DCM banker. "The cash is there, and investors are not worried about outflows, which was a concern during the final portion of 2016."
Honduras also saw books hit US$5.6bn on a US$700m trade - its first international offering since late 2013.
More deals are expected to emerge ahead of blackout periods that start around the middle of February, with Chile, Argentina, Santiago Metro and Argentine energy company Pampa Energia already on the roster for pricing next week.
Colombia could also try its luck, once it has a clearer picture on ratings following the recent passage of fiscal reforms.
And while Mexican issuers have been notably absent from the pipeline so far this year, as the peso has plummeted on Trump fears, Brazilian issuers are filling the void.
Bioenergy company Raizen and pulp and paper name Fibria have joined Petrobras, and talk of deals from other Brazilian issuers is growing louder.
Utilities such as Neoenergia and Cemig, as well as better known credits like miner Vale, development bank BNDES and petrochemical company Braskem, are just some of the credits being named as potential dollar issuers.
"This year will be the return of the Brazilian corporates," one syndicate banker said.
For now, however, all eyes are on Argentina, which mandated six banks to take it on the road next week ahead of an up to US$5bn dollar bond.
The country will once again act as a barometer for risk appetite this year ahead of substantial supply.
The federal government's massive financing needs - around US$40bn - and expectations of more provincial and corporate issuance already have some investors on guard.
"They were able to get away with saying they were going to have one major transaction last year, only to come on multiple occasions," said Sean Newman, a senior portfolio manager at Invesco.
"They have to regain credibility in this area."
Both Newman and Senecal think that a 10-year from Argentina would need to come at around 7.50% to generate interest, or about 50bp wide to where the existing 2026 has been trading.
"I would think that would get a good reception," Senecal said. "That is where they printed the 10-year last year."
The finance ministry has downplayed size, saying this week that a deal is likely to be up to US$5bn, rather than the US$10bn reported earlier in the year.
It has also emphasised that the country is looking at alternative sources of funding outside the external markets, including the local debt markets and multilaterals.
" could provide a relief rally so long as Argentina can convince the markets that the financing programme will not over-rely on external capital markets," said Siobhan Morden, head of Latin America fixed-income strategy at Nomura.
The banks mandated to handle Argentina's deal are BBVA, Citigroup, Deutsche Bank, HSBC, JP Morgan and Santander. (Reporting By Paul Kilby; Edting by Marc Carnegie and Matthew Davies)