Capital Flows to Latin America and the Caribbean

2017 Year in Review

 With one month to go to the end of the year, portfolio debt flows into Latin America and the
Caribbean (LAC) have already broken an annual record. The total amount of debt issued by LAC
borrowers from January to November 2017 reached US$ 138 billion, the highest annual amount ever
issued in the region.
 Investors’ enthusiasm for LAC assets was supported by synchronized growth at the global level, still
low interest rates across de globe (with only a very gradual tightening in the United States), weakness
in the U.S. dollar, and an improvement in the region’s own economic conditions.
 On the sovereign side, seventeen countries tapped international bond markets this year, with
Argentina topping the list with 28% of the total sovereign issuance from January to November.
Argentina attracted attention in the first half of the year by becoming the first Latin American noninvestment
grade sovereign to issue a 100-year bond.
 The 5 top sovereign issuers accounted for 65% of the total sovereign issuance in the period – they
included Argentina (28%), Ecuador (12%), Mexico (9%), Brazil (8%) and Colombia (8%) – and 22% of
the total sovereign and corporate issuance combined. Corporate issuance represented 61% of the total.
 The strong cross-border market performance was supported by a tightening in bond spreads. LAC
bond spreads tightened 56 basis points from January to November 2017. However, despite a
tightening in spreads, the credit quality in the region continued to deteriorate: there were 24 sovereign
downgrades from January to November, and 10 upgrades.
 Although current expectations suggest credit conditions will continue to be favorable in 2018,
challenges remain. Domestically, a heavy election cycle next year may lead investors to delay plans
and may bring uncertainty. Regarding the external environment, while forecasts seem optimistic, an
asset price correction or a geo-political surprise could lead to capital outflows from the region.

 The following are the main takeaways from activity in LAC international bond markets in 2017:
Sovereign and corporate issuers used bond buybacks to manage debt profiles: many issuers from
the region came to international markets with the issuance of new bonds with lower coupons to buy
back old ones carrying higher coupons, seeking to improve their debt profiles.
Oil quasi-sovereign companies and sovereigns have led in size: 17% of the total LAC issuance in
the January-November 2017 period came from oil quasi-sovereigns, including Brazil’s Petrobras,
Mexico’s Pemex and Peru’s Petroperu, with all issuances being above US$ 1 billion. On the
sovereign side, bonds of US$ 1 billion or more accounted for 53% of the total sovereign deals and
30% of the total sovereign and corporate issuance combined.
Seventeen cross-border debut issuances took place from January to November 2017: They
accounted for 6% of the total issuance in the period. 57% of the debut issuances in the period took
place in the energy sector, 19% in the transportation sector, and the rest in a variety of sectors,
including financial services, utility, retail, industry (textiles) and construction. Except for one
(Petroperu’s US$ 2 billion issuance in June), all were high-yield issuances.
There were six bond issuances with a green focus from January to November 2017: there were four
issuances in the first quarter whose proceeds are going towards renewable energy projects, although
only one was labeled a green bond, and only one green bond of the second quarter. In September,
Brazil’s Suzano Papel e Celulose, a pulp and paper company, re-opened its 5.750% 2026 green bond,
originally issued in July 2016, to add US$ 200 million, and another Brazilian paper and pulp
company, Klabin, issued the only new green bond of the third quarter.
Activity has been dominated by high-yield issuers: high-yield issuers, including sovereign and
corporate, accounted for 53% of the total issuance from January to November 2017. High-yield
corporate issuers accounted for 28% of the total.
Currency diversity has continued: although dollar-denominated issuance accounted for 81% of the
total, there were issuances in many currencies, including the Euro, Swiss Franc, British Pound,
Australian Dollar, Japanese Yen, Hong Kong Dollar, Norwegian Krone, South African Rand and local
currencies. Local currencies, which included the Argentine, Chilean, Colombian and Uruguayan Peso,
the Peruvian Sol, and the Brazilian Real, accounted for 9% of the total amount issued in the period.

Fuente: ECLAC

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