Latin America to step up bond sales as Trump fears fade

(Updates with pricing of new issues in paragraphs 3, 13)

By Tatiana Bautzer

NEW YORK, March 30 (Reuters) - Latin American governments and companies could soon step up bond sales, seizing on increased deal appetite as a regional economic recovery gains steam and concerns about potential aggressive U.S. policy changes ease, bankers and investors said this week.

Attractive returns on Latin American debt and demand for less traditional structures have allowed the Brazilian government to sell debt at record low yields. Suzano Papel & Celulose SA subsequently placed a 30-year junk bond, the first of its kind for a Brazilian firm, this month.

Arcos Dorados Holdings Inc, the world's largest McDonald's restaurant franchisee, and Chile's Empresas CMPC SA raised a total $765 million through the sale of 10-year bonds in separate deals. Brazilian logistics firm JSL SA could be next in line soon, two people familiar with the plans said.

Concerns that U.S. President Donald Trump's policies would lure capital away from Latin America have subsided, bankers and executives said. Inflows are also being fueled by market stability after the U.S. Federal Reserve's single rate hike so far this year.

Emerging market funds had $6.5 billion in net inflows in the week ended March 22, their most in nearly four years, Institute of International Finance data showed, with about $4.5 billion going to bonds.

"We'll still see a lot of debt refinancing deals, but there are a few first-time issuers tapping the market," said Felipe Wilberg, global head of fixed income for Itaú BBA SA, which is hosting an annual Latin American debt capital markets conference in New York.

According to other bankers, who asked for anonymity to speak freely about market trends, cheaper funding for the region's borrowers largely hinges on the ability of several governments, like Brazil's, to get congressional approval for key fiscal reforms ahead of a busy Latin America election calendar.

Investors initially expected Trump-related turmoil to slam the brakes on access to capital markets in Latin America, which has struggled with the end of a decade-long commodities boom.

The premium that investors demand for Latin American bonds over U.S. Treasuries stands at about 7.59 percentage points, compared with about 7.14 points at the start of the year, according to JPMorgan's EMBI Diversified Latin America bond index.

'DIFFERENT REACTION'

However, the pushback has been minor compared with prior U.S. tightening cycles that triggered violent swings in Latin American issuers' borrowing costs.

Spreads have tightened somewhat across the region, said Baruc Sáez, Itaú BBA's managing director of international fixed income.

"Although conventional wisdom states that U.S. rate hikes lead to pressure on asset prices in emerging markets, we are seeing a different reaction from investors," said Marc Nachmann, head of Latin America for Goldman Sachs Group Inc.

Earlier in the day, pulpmaker CMPC sold $500 million of so-called Green bonds at a lower-than-targeted yield of 4.42 percent. Arcos Dorados sold $265 million in global notes at 5.85 percent interest, below initial guidance of 6 percent.

JSL, the logistics firm, is discussing a potential $300 million global bond deal with banks that will have to be fully hedged against currency fluctuations because the company's revenues are all denominated in Brazilian reais, a person with direct knowledge of the transaction said.

Western Asset Management Co has raised the Latin American share of its emerging markets debt positions to 47 percent from 40 percent over the past year, as prices turned attractive and the outlook improved, said Mark Hughes, who helps oversee $40 billion in emerging market bonds for the firm.

The ramp-up has been gradual though, Hughes said, noting that bonds from Brazilian exporters now offer a better entry point than those of domestic-oriented companies.

Latin American sovereign and corporate borrowers have raised $34 billion from bond sales this year, according to Itaú BBA data. Last year, bond borrowing in the region reached $102 billion.

Bankers are raising their estimates for new Latin American bond supply this year to $80 billion from as low as $60 billion in November as the initial negative sentiment on Mexico has recovered.

In the case of Brazil, President Michel Temer's progress in pushing reforms has fueled demand for bonds like Suzano's.

"When the deal hit the road, we sensed that investors were in general more optimistic about fiscal consolidation than they were a year earlier," Marcelo Bacci, Suzano's chief financial officer, said in an interview. (Additional reporting by Paul Kilby in New York; Editing by Guillermo Parra-Bernal, Christian Plumb and Tom Brown)