The future of Capital Markets in Latin America
Article 5 minute read

The future of Capital Markets in Latin America

11 February 2019

The outlook for the markets in Latin America looks strong for 2019. Investors are finding numerous business opportunities in many countries in Latin America. With increased cross- border deals that involve secure corporate bonds, project finance, syndicated loans and bilateral loans, companies will need a local partner to help with these transactions.

Brazil

The new president in Brazil has put an immediate focus on infrastructure investments. But improvements of the roads, ports and highways will not be financed by the government. Because of limited funds from the government, it is likely that infrastructure assets which need long-term financing will end up being financed by either private investors or banks and will have to be structured.  

Prior to the election of the new president, many M&A transactions were put on hold especially in the last half of 2018. But, now that the president is in place and the new economic team has been appointed, there will definitively be an increase in M&A activity. The predictions show capital markets activity having a large increase in the amount of deals as well as the volume of transactions amounts, potentially reaching record volumes. The stock market has seen increased volumes in the first weeks of 2019 and this trend should continue for the rest of the year.

Hispanic LatAm

After presidential elections in many of the most prominent countries in LatAm, it seems there is more clarity about the policy direction in the region. Except for Argentina, economic growth is recovering mainly in Peru, Mexico, Colombia and Chile. However, economic growth is trending lower.

Peruvian growth will be driven by domestic demand, improved credit availability and enhanced government control leading to the reduction of corruption. Assets that were previously frozen due to corruption scandals are ending, which could be a good sign for increased infrastructure project development. 

In Argentina, high inflation, a shrinking economy and the uncertainty surrounding the presidential elections in 2019 are raising risks and as a result the country is experiencing a contraction in lending.

With limited public resources, the influx of financing for green energy projects is coming from the private sector and multilaterals financial institutions. The country’s goal is to help reduce greenhouse emissions.

Questions remain in Argentina around public and private programmes (PPP) to develop the much-needed infrastructure improvements in energy, mining, transportation, communication, technology, water, sanitation, housing, education, health and justice.

Mexico is also seeing a rise in the renewable energy development activity. There is a push for solar and other clean energy projects. As they look to open different supply markets and diversify the gas sector from its current location in Texas, Mexico will turn to greater investment in transmission infrastructure. Toll roads have also been a priority with many private investments opportunities. The Tren Maya Project is an example of an ambitious plan in Mexico.

Colombia is seeing many quality capital markets opportunities with infrastructure demands for new pipelines for liquefied natural gas (LNG) that will help to lower the industrial logistics traffic in the congested roadways. There is also increased investment in agriculture and airports. The toll road program has been successful with private investors. 

Chile is also active in energy and infrastructure development with many projects like solar and wind programs. Other infrastructure projects, like water desalination facilities tied to the growth of capital expenditures in the mining industry, are being financed. With extremely high capital costs needed for these types of projects, the funds will be raised through project finance investors. 

Investors are increasingly attracted to these countries and projects showing how important the region and setting the pace for long-term economic growth. 

Challenges in LatAm

A big factor that is bringing uncertainty to the markets in Latin America are the global trade wars. It is unknown how the trade wars involving Mexico, China and the US will affect business in Latin America. The performance of capital markets in Latin America will be directly impacted by the global markets. China already has an increased presence in some LatAm countries with many opportunities. 

Increasing interest rates in the US is another external factor affecting capital markets in Latin America as investors tend to look for less risky markets. With the rising rates, the cost of financing also increases and makes transactions more expensive for LatAm issuers. There are signs that the rise of interest rates will not continue this year, a good piece of news for LatAm companies looking for financing through capital markets. The hope is that an expected 2% GDP growth for the USA in 2019 and higher growth in some LatAm countries will bring investors back. 

With increasing opportunities in LatAm, businesses need escrow, trust or collateral agency agreements to isolate assets and risks of projects, and look for independent service providers for loan, securitization, escrow, project finance and structured finance services. Banks offer these services but the market sees the benefit of working with an independent and global service provider instead. A truly independent provider can provide services with a single point of contact for the many jurisdictions that a business operates in. 

TMF Group 

TMF Group in Latin America are the experts in capital market services. We are independent providers of Special Purpose Vehicle (SPV) management, Agency and Trust services for capital markets transactions worldwide. Our services across Latin America and the world include: 

Loan services

We provide support throughout the entire loan lifecycle. We service bilateral, club and syndicated loans making it easier and faster to access money from capital markets 

Escrow services 

TMF Group acts as an escrow agent for many transactions and services. We service and administer the escrowed assets per the terms set out in an escrow agreement. 

Monitoring agents 

In Brazil, we offer a service for lenders and companies who may not want to do a full audit of a company but want to see performance and behaviour in the market. We provide reports and conduct tests for your business’s needs. 

Securitization services

We provide a broad range of services for administering and managing securitizations, covered bonds and structured finance transactions for different types of assets.

Project finance services

We meet the demands and challenges that come with long-term project financing. We administer project financing with experienced staff located across Latin America. 

Capital market transactions in Latin America can be complex due to underlying assets, pledges and security packages and cross-border elements. Your business requires a local expert to navigate these challenges. TMF Group can help. Talk to us

Written by

Karla Fernandes and Juan Pablo Fernández Ranvier

Managing Director Capital Markets Services and LATAM Business Development Director Capital Markets Services

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