Latin American borrowers have hogged the limelight this year with several high profile syndicated loans, and despite razor-thin margins, banks have been buying increasingly large chunks. Some argue that the pricing is out of whack with the risk, but there is little on the short-term horizon to tip the balance away from the borrowers.
Faced by a lack of supply and too much liquidity, issuers have taken the opportunity to refinance at ever tighter margins. Tenor-extending transactions have increasingly gone into general syndication already well oversubscribed.
Those enjoying the good times include big names from Mexico and Chile – Telmex, Pemex, Bancomext, Cemex, CFE, Entel, ENAP, Banco Security, CTC, Carso, Bavaria, Hylsa and TFM. Meanwhile a wave of Brazilian credits heralded a comeback in lending to that country, with names including Grupo Votorantim, Braskem, CVRD, Banco Itau, Coelba and Telemar.
Most of these loans came at margins that initially looked aggressive. They turned out to be higher prices than the market was subsequently willing to bear. However, only one deal was pulled, from IUSA, and bankers said this was credit specific though it could affect lower-tier Mexico.
While bankers complained about the lack of returns in their staple markets (Chile and Mexico), many were unable or unwilling to reach down the credit curve into deals from comeback credits Argentina and Venezuela. And those who jumped in were sometimes disappointed by the pick-up relative to the extra risk – and in some cases subordination – they had to take on.
Techint, an Argentina-based conglomerate, wrapped up its ground-breaking US$1.38bn loan with 15 banks on board, in line with the leads' expectations. The deal confirmed the lending to Argentina trend but its complexity and bespoke structure made it an inefficient benchmark.
Despite the fact that all seemed too good to be true for LatAm borrowers, there are a few things on the horizon that could knock LatAm borrowers off their pedestal.
The region is entering a major election cycle that has the potential to disrupt supply and pricing. Some 13 Latin and Caribbean nations are going to the polls between October 2005 and April 2007. Most worrying is the fact that the outcome of big polls in Mexico and Brazil was still up in the air as of the end of the third quarter 2005.
But issuers are well prepared for a shake-out, and bankers say that an increase in supply, driven by M&A, could mark the turning point. Until then the trend looks set to continue.
With these themes in mind, representatives of some of the leading regional syndicated lenders gathered at IFR's New York offices to assess the outlook. Representatives from leading borrower Pemex, the Mexican oil giant, and the International Finance Corp also attended to broaden the scope of the discussion.
Following is a transcript of a meeting that raised enough questions to prompt a host of follow-up discussions. The bottom line was that the good times continue to roll for Latin American issuers, and only the larger banks that can offer ancillary business to the bigger issuers look like to stay in the game as it is currently being played.
