BUSINESSWEEK ONLINE : JULY 17, 2000 ISSUE
INTERNATIONAL -- FINANCE I'll Buy That Latin American Debt! (int'l edition) Suddenly, Latin American paper is popular with investors Time was, not so long ago, when investors wouldn't have touched Latin American corporate debt with a barge pole. Not anymore. In June, Brazilian banks and corporations placed some $2 billion worth of eurobonds and commercial paper, more than twice as much as in May. Enersis, the Chilean electric utility, plans to sell $1 billion in euro-denominated bonds in coming weeks. And analysts expect Mexican companies to issue some $3 billion in foreign debt by the end of the year. In fact, investors were ready to buy Mexican debt before the July 2 presidential polls. ''If a Mexican issuer had wanted to go in during the last half of June, it would have been well-received,'' says Simon Noble, vice-president for Latin American debt capital markets at J.P. Morgan & Co. in New York. ''But the companies weren't ready.'' WATCH CLOSELY. For Latin American companies trying to sell debt, it pays to strike quickly when a market window opens. Surprisingly, that often depends on economic and market conditions abroad--especially in the U.S. Even though the Mexican and Brazilian economies are expected to grow at 5% and 3.5% this year, and their main stock markets have recovered from their April falls, investors are still watching the U.S. closely. And now, the U.S. numbers look good. Around Latin America, many think that the U.S. Federal Reserve Board is guiding the economy toward a soft landing. In turn, that should create more confidence in emerging market debt. The low point came in April, when the collapse of Net stocks--combined with fears the Fed would continue to raise rates--''stopped most new debt issues dead in their tracks,'' says Arturo Porzecanski, Latin American economist at ING Barings in New York. With the return of optimism, deals are starting to reappear, although companies still can't secure the kind of long-term debt that was common a few years ago. Brazil's issues last month were mostly one-year commercial paper and one-, two-, or three-year eurobonds. That's because market liquidity is still a problem, says Joyce Chang, head of international fixed income research at Chase Securities Inc. in New York. Borrowing may be getting a tad easier, but it comes at a steeper price than before. Indeed, the gap between interest paid on U.S. junk bonds and Treasury bonds--the so-called spread--has been wider this year than it has been since October, 1991. ''If people are averse to buying U.S. junk bonds, it's even harder to persuade them to buy emerging market corporates,'' says Chase's Chang. Brazil's Unibanco, for example, will pay annual interest of 9.125% for a $175 million, 18-month eurobond issued in June, compared with 7.75% for a three-year issue of $250 million in 1997. Eletrobras, a government-controlled electric utility, placed the Brazilian issue with the longest maturity. And it paid the price: 12.025% for a five-year, $300 million eurobond. HURDLES. High interest rates have kept some potential issuers sidelined. Brazilian electric utility Light hoped to raise $150 million in June. Paulo Renato Marques, director of market relations, says the company ''decided to wait for better conditions, later in the year.'' Instead, it borrowed on local markets at real annual rates of about 14%. Light could have borrowed cheaper abroad, Marques says, but didn't want to set a high hurdle for future issues. Investors still have some concerns about political and economic stability. Mexico looks likely to have a smooth change of Presidents. Brazil's government could be distracted in the run-up to October's municipal elections, and Argentina's economy is wobbly. Walter Molano, head of Latin American research for BCP Securities in Greenwich, Conn., says: ''There's a yellow light, and everybody is revving up their engines. But the green light might not [just] click on. There are warning signs all over.'' As Latin American companies know, investors can turn on a dime. By Jonathan Wheatley in Sao Paulo, with Elisabeth Malkin in Mexico City _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS I'll Buy That Latin American Debt! (int'l edition) TABLE: Window of Opportunity INTERACT E-Mail to Business Week Online

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