Debt capital markets: Colombian bond reflects LatAm’s new reality

Colombia’s $1.5 billion 10-year benchmark bond, issued in mid-September, paid investors a big new issue premium and illustrates the new pricing dynamics for Latin American credits.

The sovereign, rated Baa2/BBB/BBB, sold the paper, which pays a 4.5% coupon, at 98.762 to yield 4.653%, or 245 basis points over US treasuries. With its 2024 notes trading at 210bp over treasuries shortly before the transaction, the sale implies a new issue premium of 30bp. That enticement to investors led to a book of around $3.5 billion and enabled the bookrunners, Bank of America Merrill Lynch and Credit Suisse, to launch at the tight end of guidance of 250bp plus or minus 5bp and inside initial price thoughts of 262.5bp.

International DCM bankers say the new issue premium and wider spreads reflect Colombia’s exposure to oil prices. However, the credit is still seen as one of the best performing in the region, which suggests that this will be a pricing reference for other deals. It is also in line with Peru’s $1.25 billion 12-year bond that surprised investors by coming to the market in the traditionally quiet month of August and offered investors a new issue premium of between 15 and 20bp.

Smart

“Colombia was very smart coming when it did,” says Harry Koppel, director at Barclays. “It took advantage of the fact that the Fed didn’t raise rates, and although it needed to start with a new issue premium of around 30bp to generate demand it still makes sense when you see that AAA credits are paying high single-digit new issue premia for supposedly risk-free paper.”

Koppel says the trend for differentiation among Latin American credit is deepening. “Investors are not just differentiating in terms of which countries are commodity exporters but they are looking specifically at the nature of those underlying commodities,” he says. “For example, Chile, with its copper exposure, is looked at more favourably than energy commodities. Meanwhile, Mexico’s long-standing programme of hedging oil is really coming to the fore and appealing to investors.”

For the full article visit Euromoney Magazine

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