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Three new LatAm issues in the pipeline

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    23 October 2019
    Published by

    As the Q3 reporting period starts, we see three new issues coming to the credit markets in Latin America.

    1) In Brazil, Prumo Participacoes e Investimentos, or PrumoPar (PRMLBZ) is planning a US$350mn senior secured 12.2 years (due in December 2037) bond, expected to be rated Ba2/NR/BB. 

    PrumoPar is the special-purpose vehicle (SPV) wholly owned and controlled and mainly used by Prumo Logistica to issue debt. The purpose of the new issue is to repay the SPV's outstanding US$200mn 8.50% senior unsecured bonds due 30 September 2022 (which trade at cUS$105.64 (ALLQ) to yield c6.42% (g-spread 483bps; z-spread 477bps), to recapitalise Prumo Logistica and for other corporate purposes. 

    One of these other purposes is the repayment of an intercompany loan agreement (ICL) with Ferroport and Anglo American's Brazilian subsidiary (Anglo Brazil) whereby, as per a shareholders' agreement, Ferroport would pay the ICL to PrumoPar and to Anglo Brazil through mandatory amortisations or prepayments up to 50% of the original amount, and payments made on a cash flow sweep basis, amounting to the remaining 50% of the loan's principal amount.

    We do not have information on the size of the ICL.

    The new bonds will be secured by: 

    • 100% of the shares of PrumoPar;
    • 100% of the shares of Ferroport Logistica Comercial Exportadora S.A. held by the issuer and that correspond to 50% of Ferroport's total shares (with the remaining 50% being owned by Anglo American);
    • Credit rights from intercompany loans to Ferroport; and
    • The issuer's bank accounts.

    The Ferroport Project (Ferroport) is a joint venture between Prumo Logistica and Anglo American that operates an iron ore shipping terminal at Terminal 1 of the  Acu Port in Sao Joao de Barra in the state of Rio de Janeiro, and is the only route currently available to transport iron ore from the Minas-Rio iron ore project, 100% owned by Anglo American, to any port. The Minas-Rio iron ore project is a US$14bn (original investment) complex that comprises integrated operations for the production of the mineral, with open-pit mines, a roughly 530km slurry pipeline and an exclusive terminal (owned 50% by Anglo American and 50% by Ferroport) at the Acu port. This terminal has an access bridge, breakwater and an iron ore pier and channel. The Minas-Rio project has an estimated 1.5bn tons of certified mineral reserves and is expected to account for c35% of Anglo American's global iron ore production by 2020.

    Initial price talk for the new bonds is in the 7.25-7.50% range, which we regard as attractive given the secured feature of the bonds and the strategic importance of the Minas-Rio iron ore project to both Ferroport and Anglo American. Therefore, we would expect a strong order book and final pricing to be more along the lines of 7.00-7.25%.

    2) Also in Brazil, Braskem (BRASKM) is expected to come to the market with a "benchmark-sized", "intermediate or long" maturity, senior unsecured bond, the proceeds of which would be used to repay the tender offers that the company announced today for: 

    • Any and all of its outstanding Braskem Finance Cayman 5.75% notes due 2021 with an outstanding principal amount of US$1bn; 
    • Any and all of the Braskem Finance Cayman's 5.375% notes due 2022 with an outstanding principal amount of US$500mn; and 
    • Any and all of the Braskem Netherlands Finance 3.5% notes due 2023 with an outstanding principal amount of US$500mn.

    Braskem will start its roadshow on 24 October and is expected to price the new deal shortly after that, in line with favorable market conditions.

    As of this moment, no details on the size, tenor or initial price talk have been defined.

    3) In Chile, Celulosa Arauco y Constitucion, S.A. (CELARA) is expected to issue "sustainability bonds" with intermediate and/or long tenor. These will be senior unsecured obligations of the issuer and are expected to be rated Baa3/BBB-/BBB. Meetings with potential investors were scheduled to begin on 21 October, but we do not have information about whether or not the meetings will continue following the protests in Chile, or about how these might affect the date of issuance of the new bonds.

    In any case, CELARA is one of the world's largest and lowest-cost producers of pulp and wood panels, and has two main and real-liquid U.S. dollar-denominated, RegS bonds outstanding: 

    • Its US$500mn 4.25% senior unsecured bonds due 2029 (Baa3/BBB-/BBB) trade at cUS$103.181 (ALLQ) to yield c3.84% (g-spread 207bps; z-spread 215bps); and 
    • Its US$500mn 5.50% senior unsecured bonds due 2049 (Baa3/BBB-/BBB) trade at cUS$109.061 (ALLQ) to yield c4.91% (g-spread 266bps; z-spread; 304bps).

    These bonds have weakened by c3 percentage points over the past few days as a result of the Chilean political situation, which we believe will soon be fully resolved. Thus, we believe that pricing on the new bonds will be based on pre-riot levels and that the company will wait until there is calm before coming to the market. We expect this to take a week or two.

    We will remain attentive to any further indications of sizes, price talks and maturities, as they become public.