beyondbrics

Dim sum acquired a distinctly Latin flavour last week after America Movil took the plunge into the off-shore renminbi debt market with a RMB1bn ($158m) issue.

The issue, a first for Latin America, is a long time coming and underscores the deepening ties between the two regions.

But while the issue from the Mexican telecom giant is certainly ground breaking and provides a huge fillip to the nascent dim sum bond market, don’t expect a rush of LatAm corporates to follow suit.

“There are other similar issues in the work which could come to the market this year,” Katia Bouazza, co-head of global capital markets for the Americas at HSBC Securities and the underwriter for the America Movil issue, told beyondbrics.

“But we also have to be realistic that this is going to be a select group. It’s not a market that will compete in terms of volume and size with the dollar market or even the local currency market. It is a strategic market and more companies with a presence in China will want to establish a presence in this market.”

One reason why bankers are not expecting to see a stampede of LatAm corporates rushing to tap the off shore renminbi market has to do with the frenzied demand for LatAm corporate bonds at the moment.

As Petrobras’ monster $7bn bond sale last week put into sharp relief, there is huge latent demand among international investors for high grade LatAm papers that offer attractive yields. The issue, which depending on the tranche, yielded between 275 and 295 basis points above US Treasuries, received some $25bn worth of bids, according to those involved.

All in all, the LatAm corporate bond market is having its best start to the year ever. Some $23.8bn have been raised so far this year via 33 deals according to Dealogic.

“There is substantial liquidity in the global market for dollar bonds issued by Latin American companies at the moment,” Nicolas Aguzin, head of JP Morgan’s Latin America operations, told beyondbrics. “By contrast, very few Latin companies will have the global name recognition in Asia to do a renminbi issue.”

At 3.5 per cent, the coupon on America Movil’s three-year dim sum issue is higher than the 2.1 per cent carried by the four-year dollar bond issued by the company last August. But for Latin America’s biggest telecom company, the attraction of going down the dim sum route lies with the potential savings in settling its accounts with its Chinese supplier in renminbi.

By selling debt in China, America Movil can make purchases in the local currency without being exposed to fluctuation risks, Carlos García Moreno, America Movil’s chief financial officer told beyondbrics.

“If we pay our Chinese suppliers in their own currency, we should get better terms and they will eliminate the currency risk…it’s a win-win”, he said.

For now, the purchases are mainly network equipment. But one can imagine that before long a lot of the smart phones that the company offers to its 200m-plus subscribers throughout the Americas will come from China, too.

Garcia Moreno told beyondbrics that the company plans to be involved in the RMB debt market on a long-term basis.

“To do a one-off transaction does not make much sense,” he said. “If our trade relationship is growing, then it has to go hand in hand with a financial relationship.”

“We plan to have an ongoing presence” in the [dim sum] market, he said, adding that last week’s offer was oversubscribed 100 per cent (ie. orders hit RMB2bn for the RMB1bn issue).

So some encouraging words for the architects of Beijing’s renminbi plan. China will no doubt be hoping others feel the same.

Additional reporting by Adam Thomson

Related reading:
Carlos Slim gets a taste for dim sum, beyondbrics
Brazil: a taste for dim sum, beyondbrics
Redback vies for share of Latam trade, beyondbrics
Latin America ponders role of the renminbi, FT
China’s renminbi drive, beyondbrics