| BUSINESSWEEK ONLINE : APRIL 26, 1999 ISSUE | ||||||||
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| INTERNATIONAL BUSINESS
The Latins Are Back in the Debt Game They're able to borrow overseas again No one will lend us a dime. That was the thinking that prevailed in the corporate boardrooms and government ministries of Latin America just a few months ago. Brazil was teetering on the brink as the government hiked interest rates to prevent a currency crash, and inflation crept upward. From Bogota to Buenos Aires, corporations were being shunned by local and foreign lenders. Few Latin companies or governments even considered approaching the capital markets. Yet suddenly, the market for Latin American debt is coming back to life. Since late March, Argentina has sold $2 billion and Mexico $1 billion in bonds. Chilean electric utility Endesa has sold $400 million in paper, and telephone operator Telecom Argentina has issued $160 million. Brazilian private banks Bradesco, Itau, and Safra have each sold $100 million or more--the country's first debt sales since its currency, the real, was devalued in January. In a key test of the market, the Brazilian government may soon issue more than $1 billion in bonds. ''LIKE A SUGAR HIGH.'' The surge in borrowing reflects renewed confidence among investors that Latin governments and top-tier companies are taking the right steps to ensure their financial health. On top of that, investors are differentiating between emerging markets, heading to Mexico and South Korea while shunning trouble spots like Russia and Indonesia. Observes William R. Rhodes, vice-chairman of Citigroup: ''Investors are starting to come back on a case-by-case basis.'' A big boost is coming from Brazil's new Central Bank president, Arminio Fraga, who took over the job in February. By showing a willingness to raise rates, Fraga has convinced foreign investors that he can manage the real to keep inflation from spiraling out of control. Meanwhile, lower interest rates around the world have boosted the amount of money available to pump into Latin America. Investors also like those high Latin yields, which are running from 400 to 700 points above comparable U.S. Treasuries. The resulting Latin rally allays some of the fears that corporations would be shut out of capital markets in 1999, aggravating the region's slowdown. For now, the appetite for debt is limited to top Latin companies, but successful corporate issues in coming weeks could pave the way for midsize businesses to issue paper later this year. Buyers of Latin bonds still need to exercise plenty of caution. Outside Mexico, where the gross domestic product is expected to grow 3% this year, Latin economies remain fragile. As its recession deepens, Argentina's annual budget deficit could come in at $5 billion--$2 billion higher than its earlier projections. Facing a fiscal deficit approaching 9% of GDP this year, Venezuela could start another wave of financial instability, especially if new President Hugo Chavez makes good on his threats to shut down Congress and implement an emergency economic program by decree. ''Right now, there is a lot of positive momentum in the region,'' says Walter Molano, head of research at BCP Securities Inc. in Greenwich, Conn. ''It's like a sugar high that could crash in an instant.'' These uncertainties put a lot of pressure on the Brazilians. If Brazil pulls off a major offering of sovereign debt, it would solidify investor confidence in the country--and the region. Investment bankers are high on the offer. They say there are a lot of potential buyers for the bonds, which are likely to have a rich yield of around 13%. A successful Brazilian offer would add buoyancy to credit markets. That would ease the pain of Latin America's economic woes. By Ian Katz in Sao Paulo, with Geri Smith in Mexico City _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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