Latin America in focus with upcoming note issues, Argentina debt swap; Interbank prices

By Christine Van Dusen

Atlanta, April 16 - Emerging markets were busy Friday as investors digested the available details about Argentina's debt-swap plan and Latin America remained an active region for upcoming new issuance, sources said.

"There was so much going on," a Europe-based source said.

Late Thursday Argentina revealed the details of its new debt restructuring plan, which offers a second exchange opportunity to the holders of $20 billion in bonds who didn't participate in a 2005 swap. That deal offered investors $33.70 per $100.00 worth of investment. The new swap is expected to be worth less but have greater market value, sources said.

The debt swap paves the way for Argentina to issue new bonds.

"The shortcoming is they won't recognize any of the payments made in the last three years for GDP warrants. That is sort of the distracting element to the overall offering," said Enrique Alvarez, debt strategist with think tank IDEAglobal. "That diminishes the value of the actual offering, but not by a lot."

Still, Alvarez expects "the amount of tenders is still going to be solid. They're aiming for 60%, and I think they will get 60%," he said. "I don't think (investors) are going to want to hold out any longer, because years have gone by and they've gotten nothing for their holdings."

As a result, the deal should get "a very respectable rate of participation, and they'll be able to float a new issue at this point," he said.

Latin America still hot

All of this didn't really impact other Latin American markets on Friday, however, and it didn't necessarily influence the recent spate of planned new issues from the region.

The day saw pricing from Lima, Peru-based Banco Internacional del Peru SAA (Interbank), with $200 million step-up junior subordinated notes due 2070 priced at par to yield 8½%, or 474 basis points over six-month Libor.

The list of upcoming Latin American deals includes Brazil-based Banco Industrial E Comercial SA (BicBanco)'s planned dollar-denominated 10-year tier 2 notes, which had a roadshow during the April 12 week and is seeing a yield of about 8½% to 8¾%, according to the European source.

Then there's Brazil-based Banco Panamericano SA and its planned dollar-denominated tier 2 notes due 2020, which also had a roadshow during the April 12 week. "Yields should be around 8½% to 8¾%," the Europe source said.

Also on the list is Brazil's Votorantim Participacoes SA's planned eurobond offering.

This flurry of activity in the region is its own story, Alvarez said. "Argentina remains an isolated case," he said.

The concentration of new deals from the region stems first from the "large pool of liquidity around the globe," he said. "Flows to emerging markets funds have reached a record."

Fund inflows lift LatAm activity

Indeed, data tracker EPFR Global recently released statistics that showed fund inflows hit an all-time weekly high of about $1.8 billion for the week ended Wednesday. The new money from investors also lifted year-to-date inflows into the funds above a previous yearly record, set in 2005.

That cash is looking for markets that don't have very steep budget deficits and very large debt-to-GDP ratios, "which are characteristics common throughout Latin America," Alvarez said. "That's why there's favoritism in the region."

A note of caution, though: "It's tight, as far as spreads," he said. "There are a lot of different points along the curve of Brazil and Mexico."

A Latin American market worth keeping an eye on going forward, he said, is Venezuela. "Oil prices had been helping but oil is a little unstable," he said. "There's a little more volatility. I'm interested to see what sort of effect Argentina can have on Venezuela - whether it will drag it along."

Axiata launches

Also on Friday, Malaysia's Axiata Group announced plans to issue up to $300 million 10-year notes in the second quarter of this year via Goldman Sachs, Morgan Stanley and CIMB Bank.

Proceeds will be used for general corporate purposes and to repay principal, accrued interest and other outstanding amounts of a S$240 million term loan granted to wholly owned subsidiary SunShare Investments.

Axiata is a telecommunications and consulting services provider based in Kuala Lumpur.

And in the secondary, the $1 billion notes due 2015 from Dubai Electricity and Water Authority (DEWA) that priced at par to yield 8½%, or Treasuries plus 592.4 bps, was "the big surprise," the Europe-based source said. "They came out at 100 and are now at 103-103.25."

Interbank prices notes

Banco Internacional del Peru (Interbank) priced $200 million step-up junior subordinated notes due April 23, 2070 (expected Ba3//BB) at par to yield 8½%, or 474 bps over six-month Libor, according to a market source.

Bank of America Merrill Lynch and JPMorgan were the bookrunners for the Rule 144A and Regulation S offering, which is non-callable for 10 years.

Interbank is a financial institution based in Lima, Peru.

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