Latin American Debt Finance: Market Update Cartagena, Colombia

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Latin American Debt FinanceMarket
UpdateCartagena, Colombia
20 September 2007
2
IntroductionThe Global Markets
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The Global Environment - Current Market Crisis

• More serious than what we have seen before
• economic, not just financial
• Excess liquidity / "easy money"
• sub-prime
• leveraged loans
• Liquidity freeze
• Asset-backed commercial paper
• European "liquidity strike"
• U.S. Bond Markets lead the way
• Real Estate Debacle - here to stay
• 10 - 15 drop in U.S. real estate might be
  expected
• Fed reaction / Outlook
• It's so bad it's good
• Short-term bailout

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Latin America - We are Not to Blame!

• In the past, Latin America caused - or was
  crippled by - market crises
• Not today - we have "decoupled"
• Latin American markets have performed remarkably
  well
• stocks / bonds / loans
• Latam America is fundamentally sound
• Liquidity should return to the Latam markets
• Barring a global economic recession, we will be
  fine
• Even if the U.S. lags....the engine for growth
  will be in Europe and, especially, Asia
• This time it is different - Latin America is here
  to stay
• Colombia is one of the countries that is showing
  the way

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IntroductionThe Latin American Markets
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Offshore Latam Bond Issuance Total Volume

• The total volume of international bond issuance
  from Latin America has increased sharply since
  2002

Source Bond Radar
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Offshore Latam Bond Issuance by Country
with Brazil and Mexico continuing to be the
largest countries of issuance.
Source Bond Radar
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Offshore Latam Bond Issuance by Currency
and the US by far the preferred currency of
choice
Source Bond Radar, SIS
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Sovereign Volumes

• Bond issuance by Latin American sovereigns has
  dropped sharply since 2005

Source Bloomberg
Source Bond Radar
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Sovereign Issuance Trends

• Latin American sovereigns have reduced their
  international bond issuance for a variety of
  factors, all of which appear to be sustainable
• Reduced funding needs
• Booming exports
• Growing international reserves
• Increased issuance in the domestic markets
• Explosive growth of domestic liquidity and
  funding options
• Sovereigns are building domestic yield curves
• Active liability management
• Exchanges
• Buy-backs
• Increased issuance of globally distributed local
  currency bonds
• Global Tes
• Global Reais

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Corporate Volumes
While sovereign issuance has declined, corporate
issuance has increased dramatically
Source Bond Radar
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Issuer Type
.and corporates now exceed sovereigns in terms
of volume and number of bonds

Source Bond Radar
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Offshore Latam Corporate Bond Issuance 2007 YTD
with Mexico and Brazil dominating the scene and
mid tier corporates now coming to market.
Source Bond Radar, SIS
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Offshore Corporate Trends

• Mid-tier corporates are the most rapidly growing
  issuer type in the international markets
• Small companies
• High yield companies
• Corporate issuance by mid-tier names will
  accelerate and is a growth area for cross-border
  Latam DCM

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EMBI Bond Spreads
Latin American bond spreads have dropped to
historically tight levels
Source SIS
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EMBI v. High Yield Composite
and are now significantly inside comparable US
high yield spreads
Source SIS
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Country Specific EMBI Bond Spreads
Every Latin American country has participated in
this spread tightening
Source SIS
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Individual Countries Rating Evolutions
as Latin American countries appear to be on a
sustainable ratings upgrade path
SP Rating
Source Bloomberg
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Investor Flows to EM
and Fund Flows into the Emerging Markets have
exploded
Source EmergingPortfolio.com
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Investor Analysis

• The universe of Latin American bond buyers has
  exploded
• Increasingly global
• US, Europe, Asia
• Increasingly diversified
• Cross-over
• High grade
• High yield
• No longer just Latam
• Looking at Latam as a subset of a broader asset
  class

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International Syndicated Loans Volume
International syndicated loan volumes have
increased over the past five years, with 2006
standing out as a landmark year
Source Loanconnector
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Project Finance
Project finance has had a steady, if
unspectacular, rise in volume
Source Dealogic
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IntroductionThe Latam Domestic Markets
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Local Market Growth
The local capital markets have grown sharply
during the last two years, with a dramatic growth
in the number and volume of domestic bond issues
Source Bloomberg
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Local Market Growth (contd)
to a point where domestic bond issuance has
begun to rival the volume of issuance in the
international bond markets
Source Bond Radar, Bloomberg, SIS
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2006 Local Markets Issuance by Country
Brazil and Mexico are the largest local markets,
although growth in Chile, Colombia and elsewhere
has been strong
Source Bloomberg
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Growth Per Country
The domestic capital markets have grown due to
increased savings and liquidity this historic
trend will continue
Source SIS, Bloomberg
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Colombian Market
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Colombian EMBI Spread
Source SIS
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Latam EMBI Spreads as of 18 September 2007
Source SIS
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Colombian International Issues 2007 YTD
Bonds
Loans
Source Bond Radar
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Colombia Upgraded to BBB- by SP
Colombia has made remarkable improvement in
its key indicators over the past four years, and
after a ratings upgrade last month is just one
notch away from joining Mexico and Chile as Latin
America's only investment-grade economies
-Colombia on path to investment grade status,
SP says, Associated Press, April 10, 2007
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