Although the first half of 2020 has been hectic and tumultuous for global markets, the primary market for LatAm has been strong thanks to accommodative central bank policies and a hearty investor appetite for yield. H1 volume was $84.113bn – slightly over $30bn more than the $53.997bn priced during H1 in 2019. This is the highest-ever first-half tally registered by LatAm issuers, and only the second time over $80bn in LatAm paper priced during the first six months of the year. The H1 total includes the nearly $37bn newly issued LatAm debt in January which broke all previous records for most prolific monthly issuance and also marked the first time LatAm monthly volume exceeded $30bn. June 2020, with $14.756bn, is now the busiest June in the entire history of the LatAm primary market.
Despite this very strong pace this year, market participants think that issuance in H2 will slowdown due to a combination of factors.
The central banks of various countries are granting credit facilities to ensure funding will not be an impediment for companies to operate. This is the case in Peru, Colombia, and Chile. Therefore, with accommodative assistance, issuers (both corporate and sovereign) from these three countries, which comprise many of the region’s Investment Grade names, may not resort to capital markets as much.
Another factor which may impede issuance is the worsening of spreads. While many of the names which came to market after the Covid-19 pandemic led to shutdowns in the U.S. and in Latin America had Investment Grade ratings, like their U.S.-based counterparts they priced with large spreads, demonstrating how much investors demanded from issuers.
Seasonal factors and events may play a role as well. August has historically been a slow month for Latin America. Then, by the start of autumn, the market will have a better idea as to how the pandemic will look – whether a second lockdown will take place at least in certain parts of both the U.S. and Latin America, or whether markets and localities will return to life as it was before the pandemic (or something resembling it). October will be inevitably affected by the 2020 presidential election.
Although H2 is forecast to be somewhat slower than H1, issuance may remain robust. Investment grade names, many of whom came to market after the pandemic took hold, may look for more financing - particularly if the pandemic persists or makes an unexpected (and certainly unwanted) comeback. Additionally, many market players expect Mexico to make an appearance in H2. While Mexico already printed a $6bn, 3-part trade (5yr, 12yr, 31yr) back on April 22, there is chatter of an even larger deal, possibly $10bn or more. 2020 could still end up challenging 2017 as the busiest year for Latin American issuance yet with $84.337bn to date as of July 1 vs. the 2017 total of $146.856bn.