While investors have been burned in a
tough year for the asset class, they still have
money to put to work for solid investment-
grade names, bankers said.
“This is the type of credit people can
stomach,” said one banker. “It is investment-
grade and a Colombian utility. That is a good
place to park money.”
5LTIMATELY ûTHEûBONDûCAMEûABOUTûBPû
wide to the sovereign curve, where its
ûûWASûTRADINGûATûAROUNDû û
ORûSOMEûBPûWIDEûTOû4')SûEXISTINGû
2022s.
It also offered a 30bp pick up to the
country’s state-owned oil company
Ecopetrol whose curve suggests fair value on
AûNEWû
YEARûATûAROUNDû ûTHEûBANKERû
said.
Other comparables were utilities involved
in transportation or distribution such as
Chile’s Transelec (Baa1/BBB/BBB), Peru’s TGP
(Baa1/BBB+) and Mexico’s IEnova (Baa1/BBB/
BBB+).
Those companies have outstanding 2029,
2028 and 2027 bonds respectively trading at
YIELDûOFûAROUNDû ûûANDû û
ACCORDINGûTOû2ElNITIVûDATA
Mexico’s Fermaca, which also transports
natural gas, is another possible comparable,
though its outstanding bonds are structured
ASûAûPROJECTûlNANCEûSECURITY ûSAIDûAûSECONDû
banker.
Its 2037 bond, rated Baa2/BBB-, has been
TRADINGûATûAROUNDû
Fitch highlighted TGI’s strong links with
its parent Grupo Energia Bogota (GEB) andcontracts with an average remaining life
of around eight years.
The ratings agency calculated
that leverage, which includes a
US$370m intercompany loan with GEB,
WILLûBEûBETWEENûXûTOûXûOVERûTHEû
medium term.
HSBC and JP Morgan were leads on the
deal, rated Baa3/BBB-/BBB-.EPM GETS NOD TO RAISE UP TO US$2bn
OF DEBTState-controlled utility EMPRESAS PUBLICAS DE
MEDELLIN (EPM) has been authorised to raise
up to US$2bn in the external debt markets,
ACCORDINGûTOûAûRECENTûlLINGûWITHûLOCALû
regulators.Optimism quickly fades in tough day
for Latin American issuers
AMERICAS Mixed result for issuers in tricky marketsLatin American primary markets saw one of their
busiest days in months last Thursday as five
issuers jockeyed for attention in what remained a
volatile asset class.
Yet with the tone turning increasingly risk off,
deal execution on an eclectic mix of trades was
a tough slog after what at first appeared to be a
promising start to the week.
Large books for the likes of Mexican oil firm
PEMEX and Colombian pipeline TGI encouraged
borrowers to move forward with deals after
sitting on the sidelines for months.
But investors found themselves less
enamoured with some of the less well-known
credits that approached the markets last week,
asking for wider concessions or forgoing smaller
illiquid issues altogether.
Global headwinds such as tighter US monetary
policy, a strong dollar and idiosyncratic risks
in Latin America had some on the buyside
hunkering down for tough times ahead.
“We are not going to be active in this window,”
said Ricardo Navarro, a portfolio manager at
Noctua Partners.
“I don’t think the wider new issue premiums
are reason enough to compensate for the
headwinds facing the market at the moment.”
PANAMA, Colombian pipeline AI CANDELARIA,
Chilean utility EMPRESA ELECTRIC COCHRANE,
Brazilian beef name JBS and Mexico’s MABE
saw mixed results as they rushed to print on
Thursday.
JBS, which Moody’s upgraded a notch last
week to Ba2, was arguably the most successful
deal of the day amid optimism over the
prospects for far-right candidate Jair Bolsonarowinning the presidential election later this
month.
Even so, pricing progression on the deal was
hardly aggressive, with the US$500m 7% seven-
year non-call three coming at 7.125% or 339bp
over Treasuries, within initial price thoughts of
low-to-mid 7%.
Several issuers, however, skipped guidance
altogether and went straight to launch, or
offered high concessions in a sign that markets
have been turning against them.
And Empresa Electric Cochrane was
ultimately forced to throw in the towel on its
2032 amortising bond after issuing guidance at
6.75% or flat to IPTs of mid-to-high 6%.
Panama landed a US$500m tap of its 4.5%
2050 at plus 155bp, or some 10bp over where
the bond was trading in the secondary markets
earlier last week.
“Panama barely tightened,” said one banker,
who thought a 10bp concession was high for a
sovereign reopening.
Colombia’s AI Candelaria, which owns about
22% of the Ocensa pipeline and is controlled by
private equity firm Advent, also faced push-back
despite attractive pricing.
It also bypassed guidance to launch a
US$650m 2028 bond with a weighted average
life of 7.9 years at 7.5%, flat to initial price
thoughts of mid 7%.
Books were heard to hit just US$1bn despite
Candelaria’s strong credit standing.
The abundance of trades in the market
capped books on Candelaria as well as any
tightening on the issue, said Till Moewes, a Latin
America credit analyst at Schroders.As a result he thought the deal would come
significantly wide to where he calculated fair
value at 6.75%.
“IPTs on Candelaria look attractive,” he said.
“It is a company that is stable and has a long
track record, produces impressive pre-dividend
cash flow and has Ebitda margins of more than
80%.”
Moewes also pointed to the fact that in
Colombia tariffs are adjusted higher should
volumes through the pipeline fall, adding
another layer of protection.
On the downside Candelaria is essentially a
single asset company with a 22% stake in the
Ocensa pipeline and its bonds are structurally
subordinated to Ocensa debt.
Even so, Moewes said that Candelaria’s board
must approve any expansion-related debt
increases above US$100m at Ocensa, which still
enjoys light leverage of around 0.5x.
“Candelaria has a strong position corporate
governance-wise and that means the risk of
bondholders getting more subordinated is low.”
While Fitch takes a similar view and rates the
credit BBB-, S&P automatically lowers ratings on
any non-controlling holdco such as Candelaria,
in this case rating it BB-.
“S&P is not considering all the rights at the
shareholder level, which is larger than the 22%
stake would indicate. They have a lot of power on
the board.” said Moewes. “It should be BB+.”
That made final pricing of 7.5% particularly
attractive, given that the BB+ rung of the
JP Morgan’s EM corporate index, CEMBI, is
returning 5.87%, he said.
Paul Kilby