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Friday, January 20, 2012

Colombia Record Corporate Debt Sales Extending to Barclays on GDP Growth

Colombia’s quickening economic growth is a signal to Barclays Capital Inc. and BCP Securities LLC that last year’s record corporate bond offerings will extend into 2012 as companies seek to finance expansion plans.

International sales rose 149 percent to $4.3 billion in 2011, the second-biggest jump among major emerging-market countries after the Czech Republic, according to data compiled by Bloomberg.

Issuers led by Bancolombia SA (BCOLO), the country’s biggest bank, tapped into a rally that cut average Colombian dollar bond yields to 5.32 percent from 6.64 percent at the start of 2010, JPMorgan Chase & Co.’s CEMBI Broad index shows.

Companies’ financing needs are increasing after a decade of military victories over guerrillas opened up the countryside to investment in oil, coal and gold, spurring central bank forecasts for the fastest economic growth since 2007.

Slowing expansions elsewhere in Latin America and improved security in the Andean country are helping lure new investors to Colombian bonds, said Jim Harper, director of corporate research at BCP Securities in Greenwich, Connecticut.

“Colombia is one of the darlings of the market,” Harper said in a telephone interview. “Everything that comes out of Colombia seems to be well oversubscribed and prices very well.”
High-Grade Market

Grupo Aval Acciones y Valores SA, Colombia’s biggest banking group by assets, said in a regulatory filing this week it is meeting with investors to study an overseas bond sale.

State-run power producer Isagen SA said in August that it may sell as much as $500 million of bonds abroad. Banco Davivienda SA (PFDAVVND), Colombia’s third-largest bank, said that month that it plans to issue up to $350 million of bonds abroad.

Officials from Isagen (ISAGEN) and Davivienda declined to comment further.

Colombian issuance “is going to grow,” said Gustavo Ferraro, head of debt capital markets for Latin America at Barclays Capital in New York. “Besides the traditional emerging-market accounts, investors in general are now interested in Colombia as a player in the high-grade market.”

Colombia was raised to the lowest level of investment grade by Standard & Poor’s in March, Moody’s Investors Service in May and Fitch Ratings in June amid accelerating growth and improved security.

Regional Peers

The Colombian government on Jan. 10 sold $1.5 billion of bonds due 2041 to yield 4.96 percent in its first overseas offering since July. Investor demand for the securities totaled about $3.6 billion, according to the Finance Ministry.

Sales will probably be led by commodities companies and public utilities, both of which are favored by investors, Ferraro said.

Colombia’s economy will grow 4.5 percent this year, more than the region’s 3.7 percent estimated pace, the United Nations Economic Commission for Latin America predicts.

The central bank forecasts the South American country grew as much as 6 percent in 2011, the fastest pace since 2007.

The economy expanded 7.7 percent in the third quarter from a year earlier, the most since the fourth quarter of 2006. Brazil’s economy shrank in the third quarter for the first time in more than two years while growth slowed in Chile and Peru.

Foreign direct investment in Colombia jumped to $10.8 billion in the first nine months of last year, more than the whole-year figures since at least 1994, according to the central bank. Foreign companies put 60 percent of that money in oil and mining. The government forecasts foreign direct investment reached a record $13 billion in 2011.
Energy Investment

“Based on the outlook for Colombia, the opportunity is there for corporates to continue issuing,” said Paolo Valle, who helps oversee $1.3 billion of emerging-markets securities, including Colombian debt, at Federated Investments in Pittsburgh.

“There are very good companies in Colombia that we would like to see more often.”

The likelihood the central bank will raise interest rates further in 2012 to keep inflation in check will keep Colombian companies issuing abroad as they seek lower borrowing costs, said Daniel Velandia, head analyst at brokerage Correval SA in Bogota.

The 149 percent jump in overseas issuance in local-currency and dollar-denominated bonds by Colombian companies in 2011 compares with a 24 percent increase in Brazil and declines in Mexico, Chile and Peru.

In other major emerging-market economies, the Czech Republic’s 298 percent jump is the only one that outpaces Colombia. Issuance in India, Russia and South Africa also declined from 2010.

Bond Appetite

Colombia is the only major Latin American economy to have increased borrowing costs in recent months. The central bank increased the overnight lending rate 25 basis points, or a quarter percentage point, in November to 4.75 percent, citing “very dynamic” internal demand, loan growth and record housing costs.

A majority of economists in a central bank survey published Jan. 12 forecast Banco de la Republica will increase the key rate to 5.5 percent by the end of the year.

Less appetite for higher-yielding assets and smaller issues, as well as reduced financing needs from Colombian companies that have already tapped the market, may mean overseas corporate bonds sales will fall this year, Federated Investments’s Valle said.

‘Next Big Thing’

The nation’s upgrade to the lowest level of investment grade in 2011, which was followed by similar moves for ratings in companies including Bancolombia and Empresas Publicas de Medellin SA, known as EPM, led companies to sell debt as they took advantage of the reduced borrowing costs.

Bancolombia sold $1 billion of 10-year bonds in international markets on May 24 to yield 6.01 percent. The yield has since fallen to 5.79 percent.

EPM, a regional utility company, on Jan. 24 sold $675 million worth of 10-year peso- denominated debt abroad to yield 8.5 percent. The yield on the securities has declined to 7.68 percent.

The average yield on Colombian corporate dollar bonds at 5.32 percent compares to the 6.17 percent average yield for Latin American countries, 6.1 percent for Brazil and 6.29 percent for Mexico, according to JPMorgan’s CEMBI Broad index.

“Everyone is in Brazil by now and people have been doing Mexico for a while,” said Joe Kogan, a debt analyst with Scotia Capital in New York. “Investors are always searching for the next big thing and what we see in Colombia are good fundamentals.”

bloomberg.com

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