Colombian businessmen will not have it easy this year either when it comes to obtaining financing for their projects and investments. High interest rates, runaway inflation and the imminent slowdown in the economy will prevent them from seeking resources not only with banks, but also through the capital market, which last year had the worst year in its recent history with an overwhelming drop in private debt issues.
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Indeed, in 2022 there were only 16 issues of bonds and other debt securities worth 2.49 trillion pesos, 76.3 percent less than in 2021, «the lowest level recorded in recent history»according to the analysis of the brokerage house Casa de Bolsa.
The figure was 4.2 times less than that registered in 2021 (some 10.5 trillion pesos) and 5.5 times less than the maximum reached in 2010 (13.8 trillion), one of the years with the most high placement of corporate debt in recent decades, according to records of the Colombian Stock Exchange (BVC).
The notable increase in interest rates, which They exceeded two digits due to the inflation spike; the increase in risk premiums, as a consequence of the withdrawal of economic and fiscal stimuli; a rebound in risk aversion, due to expectations of an economic recession, and greater CDT deposits by credit institutions, with the aim of meeting resource funding requirements, are among the main reasons for the collapse in the issuance of that debt last year.
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The worrying thing for this 2023 is that the outlook does not look better than last year. What’s more, analysts consulted agree that, with an economic slowdown under way, the public debt market could suffer even more.
«I think that while inflation and interest rates are high, issuers would look for another source of financing other than the placement of bonds. But once inflation and rates begin to declineprobably the dynamics of private debt placements will be activated again», precisely Juan David Ballén, director of Analysis and Strategy of the brokerage house of Casa de Bolsa.
hard outlook
This will not happen, at least, before the end of the first quarter of 2023, a period in which inflation is expected to continue rising, as long as the board of directors of the Banco de la República makes two additional adjustments in its intervention rate of the market, today at 12 percent.
65.6 percent of the market analysts consulted by the Fedesarrollo economic studies center believe that in their first meeting of 2023, the issuer’s board will bring its intervention rate up to 13 percentwhile 68.4 percent expect that this rate will remain above 10 percent at the end of 2023.
«This will undoubtedly be a difficult year for the private debt market because we are going to have high interest rates,» says Daniel Velandia, Research Director and Chief Economist at Credicorp Capital Colombia, who maintains that the expectation that the Bank of the Republic raise its rate two more times and exceed 13 percent.
The expert maintains that, to the extent that inflation is high and rates are high, there is less incentive to place debtThis, together with a slowdown in the economy, whose growth they estimate could fall to 1.3 percent, after the rebound of close to 8 percent in 2022, helps the outlook not look very positive.
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This will undoubtedly be a difficult year for the debt market because we are going to have high private interest rates
The conditions of the high cost of financing and the expectations of less economic activity are the factors that maintain a fairly moderate behavior of debt placements (bonds) by companies and rather what one is seeing is that many of those who operations are going to be carried out will focus on refinancing.
In the midst of these low emissions last year, the entities that went to the capital market for resources for their projects were the entities of the financial sector. Of those close to 2.5 trillion, 75 percent was captured by them, while the remaining 25 percent corresponded to emissions from the real sector.
According to Casa de Bolsa, the entity that placed the most debt was Bancóldex, with more than 500,000 million pesos; followed by Banco Popular, with more than 490,000 million, and Isagén, with more than 256,000 million.
The same report indicates that the majority of issues made in 2022 were for a term of 3 years (1 trillion pesos). They were followed by those agreed to 2 years (more than 405,000 million).
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«Most of the issues carried out in the medium and long tranche were indexed to the CPI and denominated in the UVR. 53 percent of the series corresponded to titles denominated in a fixed rate; 30 percent, to titles indexed to the CPI; 12 percent, to securities indexed to the IBR, and the remaining 5 percent, to securities denominated in the UVR».
To try to face the current economic and political scenario, Daniel Velandia, from Credicorp Capital, says that it is very important that the market, companies in general, and investors pay attention to everything. what may happen with the reforms (pensions, labor, health) announced by the Government and what comes next.
These, they will warn, will be decisive for the market conditions and the expectations of new investment projects of the companies. «If there are no new investment projects, the route line is not very long, the need to go out and look for financing is reduced,» the economist says.
Ballén, from Casa de Bolsa, is also convinced that the pension reform will be key to the future of the corporate debt market to the extent that pension funds are one of the main investors in this market.
«In that sense, depending on how the pension reform, there could be some type of impact on the demand side of debt bonds. If the flow of contributions from pension funds is affected, it would be a negative blow since it would decrease their purchasing power for this type of titles, not only private debt, but any financial asset,» says the analyst.
