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LatAm: Colombia's Promigas comes to market tight; update on recent issues

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    8 October 2019
    Published byTellimer Research

    Promigas S.A. E.S.P. and Gases del Pacifico S.A.C. were expected to co-issue (under the name Promigas – PROMIG) senior unsecured bonds with intermediate maturity, expected to be rated Baa3/NR/BBB- (see our report here). We learned today that the deal will amount to US$400mn (which will not grow) and will have a 10-year maturity. The ratings are now expected to be Baa3/NR/BBB, with Fitch rating it one notch higher than initially expected. 

    As reported earlier, within the Latin American integrated energy services universe, we believe that Promigas should be valued relative to peers such as Pampa Energia (adjusting for the inherent Argentina risk and its subsequent ratings differential), Petrobras (adjusting for size, scope, ratings and the company's well-developed credit curve), Transportadora de Gas del Sur (also adjusting for Argentina risk, ratings differential and limited business activities) and, perhaps most closely, to Ecopetrol (adjusting here also for scale and scope, but at a spread discount to ECOPET rated Baa3/BBB-/BBB-). We believe that pricing should range between 250bps and 350bps, depending on the size of the issue and its final maturity. 

    The price guidance given today is T+262.5bps, which we believe is tight, but given the drought of high-quality Colombian corporate paper, demand should be strong even at these levels and might even tighten a few basis points, depending on the size of the final order books.

    Meanwhile, two other credits came to the bond market as we expected:

    First, Chile's AES Gener came to the market slightly tighter reflecting the bonds' subordination, extremely long maturity and "green" features. The company was expected to come to the market with US$450mn 60-year (non-call 5.5 years) junior subordinated green bonds, expected to be rated Ba2/BB/BB. The initial price guidance was "mid-6%s". AES Gener, S.A. ended up issuing a coupon of 6.35%, at par and the bonds have a maturity date of 7 September 2079. 

    We noted earlier that, given the tenor and characteristics of the bonds, they would generate strong demand, mainly from local pension funds. In addition, since these funds tend to "buy and hold", we expected the new issue to be quite illiquid, after the initial issuance. This has proven to be the case: according to Bloomberg, since the date of their issuance, the bonds have traded at US$100.901, and as of today, they have barely moved to US$101.341 (ALLQ) to yield c6.05% (g-spread 469bps; i-spread 473bps).

    The company has a US$550mn 7.125% junior subordinated green bond outstanding due 2079 (Ba2/BB/BB) and trading at cUS$104.576 (ALLQ) to yield c5.99% (g-spread 465bps; i-spread 467bps) and 3.983 years' workout duration. As we expected, there was also a minimal concession for the new bonds (if any, since the final price could be tighter than the current guidance).

    Second, Minera Mexico (SCCOMX) issued US$1.0bn of 4.50% senior unsecured bonds due 2050, at a re-offer price of US$98.733 for a spread to U.S. Treasuries of T+2.875bps. These bonds are currently trading at cUS$98.706 (ALLQ) to yield c4.58% (g-spread 256bps; z-spread 299bps) and have traded, since its issue date, within a range of between US$97.662 (their low on 3 October) and US$98.925 (their high on 30 September). There were no surprises here.