By Paul Kilby
NEW YORK, Jan 4 (IFR) - Three Latin American issuers announced roadshows on Wednesday, kicking off what is expected to be a busy January for the region's new issue market.
Honduras, Argentine power generator Genneia and Brazilian pulp and paper company Fibria are already preparing dollar bond sales next week and more are likely to follow.
Sovereigns such as Argentina, Chile and Paraguay are heard eyeing the dollar markets, while Brazil is reportedly considering a euro trade as well.
Among corporates, state-owned oil companies like Argentina's YPF and Brazil's Petrobras will also likely move forward with deals in coming months.
"I would expect issuers to start tapping under current market conditions ahead of what could be a volatile 2017," Ricardo Navarro, a portfolio manager at asset management firm Noctua, told IFR.
After a rocky November following Donald Trump's surprise electoral victory in the US on November 8, Latin American credit spreads have been steadily grinding tighter.
The reference spread on JP Morgan EMBI Global Diversified Index is now back at 339bp after spiking to a recent high of 383bp in the week following the US election.
The cost of protection in Brazil - which has been struggling to emerge from its worst recession in decades - has also enjoyed dramatic declines.
The sovereign's five-year CDS, for example, was trading at 263bp on Wednesday, dropping from a recent high of 326.5bp on November 14, according to Thomson Reuters data.
Investors and issuers have found some comfort in some of Trump's cabinet picks, a more stable Treasury market and rising oil prices, which have been supportive for the commodity exporting region.
With billions of dollars in financing needs this year, Argentina is likely to waste little time and could well set the tone for the month ahead.
Local press is already reporting that an up to US$10bn deal could come as soon as January 10, and Finance Minister Luis Caputo has been quoted saying the company needs to raise over US$40bn this year.
While the sovereign should find a receptive audience for its bonds, investors will be more circumspect this year as the government struggles to reinvigorate the economy.
In December, President Mauricio Macri fired his former Finance Minister Alfonso Prat-Gay, the man credited with master minding Argentina triumphant return to the bond markets last year.
The abundance of sovereign issuance last year also hasn't sat well with some investors who thought that the government had gone back on promises to issue just once in 2016.
"They damaged their reputation for failing to keep their issuance goals in 2016," said Sean Newman, a senior portfolio manager at Invesco. "There is a credibility gap they need to restore."
Yields on the country's 7.5% 2026 have been inching higher since the beginning of the year and as of Wednesday stood at around 7%.
"They will need to come at least 50bp back to the curve," said Newman. "They have to come to cheap (with the market) knowing another US$12bn could come behind it."
Another jumbo issue could come from Petrobras which still needs to term out debt maturities, and has long been rumored to be eyeing another bond sale.
"Everyone expects them to come in January," another investor told IFR. "They may be waiting to increase (domestic) fuel prices again."
While the oil company fell short of its divestment target to raise US$15.1bn, investors largely feel the company is heading in the right direction, and is still seen as cheap to the sovereign.
Petrobras's 8.75% 2026 is trading at a G-spread of around 498bp versus a G-spread of about 298bp on Brazil's 6% 2026.
"People want to buy this stuff as it is liquid," said a DCM banker. "Its 10-year is trading 200bp back to the sovereign and people feel it could come in some more."
Many issuers as such are being encouraged to tap ahead of any potential rate jolts and before possible upsets once Trump takes office on January 20.
"Come January 20 when Trump becomes president people will decide quickly whether these prices are justified," Navarro said.
(Reporting By Paul Kilby; editing by Shankar Ramakrishnan)