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Three issuers add to LatAm primary uptick
September 29, 2016 / 8:21 PM / a year ago

Three issuers add to LatAm primary uptick

NEW YORK, Sept 29 (IFR) - Three more Latin American issuers hit the bond market on Thursday at the end of a busy week for the region after higher oil prices helped bolster sentiment toward the asset class.

Mexican retailer Liverpool, financial institution Banorte and Brazilian fuel distributor Ultrapar added another US$2bn in supply, bringing this week’s tally so far to just over US$4bn.

This follows bond sales from the Republic of Peru, Votorantim Cimentos, AES Panama and Ecuador, with volumes likely to rise further if Argentina prints its euro bond on Friday.

While investors are cautious heading into the fourth quarter as they look to hold onto strong gains in EM this year, the bid for primary issues remained healthy on Thursday after OPEC’s decision to cut output sent crude higher.

“Overall for EM the sentiment is good on a day when oil goes higher,” said a London-based investor.

A 10-year bond from Liverpool, rated BBB+/BBB+, gained strong momentum earlier on, allowing leads to tighten guidance from IPTs of T+275bp area to T+250bp (plus/minus 5bp).

Investors like the credit - which hasn’t been in the market since 2014 - even at a time when volatility in the peso could potentially hurt local currency revenue generators like Liverpool that are raising dollar debt.

“It is a big company with low leverage,” said Jason Trujillo, a senior analyst at Invesco. “They can handle the currency volatility.”

Liverpool will hedge this bond against FX fluctuations, just as it did with its last issue, according to Fitch.

The company has been on an acquisition spree, however. It recently agreed to buy Suburbia from Wal-Mart de Mexico for close to US$1bn equivalent, while also bidding for Chilean retailer Ripley in a deal that some analysts think is expensive for the Mexican company.

Both those acquisitions could push adjusted leverage to 2.6x next year, up from the 1.2x in June 2016, according to Fitch.

Despite that, at final launch yield of T+245bp, Trujillo thinks the US$750m deal comes flat or little inside fair value to its curve, where the company’s 2024s are trading at a Z-spread of 226bp.

Even so, the final yield looks attractive against Chilean department store Falabella, which is rated BBB+ and has a 4.375% 2025 trading at 3.39-3.34%, according to Thomson Reuters data.

Mexican bank Banorte meanwhile approached investors with US$500m 15-year non-call 10 subordinated capital note on a tough day for bank stocks as investors fretted about the declining health of Deutsche Bank.

Indeed, leads stopped short of tightening the deal to the lower end of the guidance range of 6% (plus/minus 5bp) and stuck to 6% at launch.

The final yield is about 194bp over where Trujillo calculates a senior 10-year deal from Banorte would come, putting it well above the 100bp plus spread differential typically seen between senior and sub bonds in EM.

“They are offering a concession, but it is necessary given the lack of clear comparables,” he said.

Elsewhere, Ultrapar, rated Ba1/BB+, launched a US$750m 10-year at 5.50%, after reeling in pricing from IPTs of high 5%.

At those levels, final pricing is inside what one investor thought was fair value of 5.6% after he compared it to bioethanol company Cosan and petrochemical name Braskem, whose 2024s and 2027s were respectively trading at 5.85% and 5%.

Ultrapar also came tight to where Brazil’s Votorantim Cimentos (Ba2/BB+/BBB-) printed earlier in the week when it sold a US$500m 2027 bond with a 6% yield.

“Ultrapar is a great company,” said a senior banker away from the deal. “Relative to their financial strength they are paying up a bit. It is just not as well known as some of the more frequent names.” (Reporting By Paul Kilby; Editing by Shankar Ramakrishnan)

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