Flash Fixed Income Report /

Colombia: Gran Tierra Energy's new bond issue; attractive initial price talk

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    20 May 2019
    Published by

    Canada-based Gran Tierra Energy (GTE), an international oil exploration and production company focused on Colombia (and more recently in Ecuador), is expected to come to the market with an 8-year (NC4) US$300mn, senior unsecured 144A/RegS bond (B+ Stable/B Positive). The new issue is guaranteed by the company's wholly-owned subsidiaries Gran Tierra International Holdings Ltd., and each of the issuer's material subsidiaries.

    Initial price talk for the new issue is c8.125%, although we believe that the final pricing could be between 7.9%-to 8.0%. We believe the bonds will be well received by the market and will generate strong demand, justifying our expectations that the bonds could be priced below the initial price talk. 

    The company appears to be solid operationally, financially and technically, despite recent market volatility. Moreover, this will be the first issue coming to the bond market since 8 May (when Bioceanico issued its debut deal), which means that the issue will find ample appetite from investors. Even if it prices at the lower end of our expectations, the issue is still attractive both on an absolute and relative return basis. We also see further upside once issued as demand in the secondary market is likely to push prices higher, resulting in spread compression. We like this bond.

    Meanwhile, the company has a US$300mn, 6.25% senior unsecured bond outstanding (B+/B) due 2025, currently trading at cUS$96.615 (ALLQ) to yield c6.97% (g-spread 475bps; z-spread 476bps) and a duration of c4.8 years.

    The company's debt at end-2018 consisted of US$115mn in convertible notes due between 2020-2021, interest payments of US$127.73mn, oil transportation services debt of US$7.053mn, a power generation credit facility for US$15.084mn, and operating lease amounting to US$7.528mn for total contractual obligations of US$572.395mn.

    The company's oil production was c36.209 thousand barrels per day (mbpd) in 2018, 31.426 mbpd in 2017 and 26.216 mbpd in 2016. The issuer had 1P reserves of  70mn barrels of oil equivalent (mmboe) in 2018, 150 mmbboe in 2P, and 215 mmboe in 3P. Gran Tierra's total average production in 2018 was 29.053 thousands of barrels of oil equivalent per day (mboepd) with total oil and gas sales volumes of 28.717mboepd.

    In 2018, Gran Tierra generated oil and gas sales of cUS$613.4mn, compared with US$421.7mn in 2017. The company also reported EBITDA of cUS$373.7mn, substantially higher than the US$185.5mn in 2017. CapEx in 2018 was US$347.1mn.