Colombian Copycat Banks Sell 13 Years of Bonds in Months

Colombian banks are selling record amounts of foreign bonds this quarter, pushing this year’s tally above the total of the previous 13 years, as they take advantage of record-low U.S. rates to finance more lending.

Billionaire Luis Carlos Sarmiento Angulo’s Grupo Aval Acciones y Valores (AVAL) SA and Bancolombia SA (BCOLO) led sales of $2.45 billion of bonds since July 1, compared with $500 million the previous quarter and no sales in the same period of 2011. Lenders sold $3.55 billion this year, topping the $3.14 billion issued from 1999 to 2011 and more than double the offerings from banks in Mexico.

The sales are helping fund a 17 percent lending surge as Colombia’s economy expands at the second-fastest pace among Latin America’s biggest countries, behind Peru. Bancolombia, the country’s biggest bank, issued $1.2 billion of 10-year bonds on Sept. 4 to yield 5.2 percent, down from 6.01 percent in a sale of similar-maturity notes in 2011. Each successful offering helped spur another bank to emulate the sale, said Shamaila Khan, an emerging-market money manager at Alliance Bernstein LP.

“Successful sales encourage other issuers with a similar profile to come to market,” Khan said in a telephone interview from New York. “The Latin American market has been dominated by Brazil and Mexico, so the appeal of getting the diversification, of going into some of these other countries that also have positive fundamentals, is very attractive.”

Aval’s $1 billion offering last week attracted almost $8 billion in bids while securities from Bancolombia and Banco Davivienda SA (PFDAVVND) were each six times oversubscribed, according to the banks. Aval’s sale capped a two-week period in which $2.2 billion of Colombian bank debt was issued, 90 percent of the total for the third quarter.

‘Exhausted’ Investors

While there is appetite for Colombian assets, the surge in issuance from the Andean country in the last few weeks may have left investors “exhausted in the near term,” said Joe Kogan, the head of emerging-market debt strategy at Scotia Capital Markets.

“There has been a lot recently,” Kogan said in a telephone interview from New York. “You kind of wish they’d coordinated a little more instead of sending it all at once.”

Besides Bancolombia and Grupo Aval’s offerings this month, the Colombian government sold $557 million of peso-linked bonds in overseas markets on Sept. 14 and Colombia Telecomunicaciones sold $750 million of 10-year dollar debt on Sept. 20.

Corporate Yields

Sales will continue as Colombian companies take advantage of average borrowing costs near the record low 3.96 percent reached Sept. 19, said Robert Abad, who helps manage about $41 billion in emerging-market assets at Western Asset Management Co. After half a century of civil conflict froze foreign investment, efforts to make peace with Marxist guerrillas will spur economic expansion, according to Abad.

“This is just the beginning,” he said in a telephone interview from Pasadena, California. “Everything is primed for banks to get into a takeoff stage, to drive investment. The environment’s right, there’s investor demand, a need for capital, and the corporate sector is hungry for financing.”

Banks in Brazil, Latin America’s largest economy, sold $11.4 billion of bonds this year, making them the region’s biggest issuer. Colombian banks displaced Mexican lenders as the region’s second-biggest issuers of debt last year. In 2010, Colombian bank issuance was half that of Mexico’s.

Dollar debt sales from all Colombian companies and the government have climbed to a record $6.55 billion this year, up 23 percent from $5.33 billion in all of 2011, according to data compiled by Bloomberg.

Shrinking Spread

Bond-buying programs by the Federal Reserve and the European Central Bank are driving down yields on debt from developed nations, leading investors to seek out notes in emerging markets to bolster returns. Investors demand an average 301 basis points, or 3.01 percentage points, in extra yield to hold Colombian dollar-denominated corporate bonds rather than U.S. Treasuries, according to JPMorgan indexes. That is down 101 basis points this year and is lower than the 386 basis point spread for Brazil’s corporate dollar debt. Colombian government debt is rated BBB- by Standard & Poor’s, the lowest investment grade, while Brazil is rated one step higher at BBB.

“People are interested in participating in one of the fastest growing economies in the region,” said Marc Chouchani, a director in Latin American debt capital markets at Credit Suisse Group AG, which helped manage Davivienda’s bond sale. “These banks are growing and the rates are so attractive that it’s hard to pass up.”

Growth Outlook

The International Monetary Fund forecasts Colombia will expand 4.7 percent this year, trailing only the 5.5 percent estimate for Peru among Latin America’s biggest economies. Colombia’s economy grew 4.9 percent in the second quarter from a year earlier, according to a government report last week, beating the forecasts of all 29 analysts surveyed by Bloomberg.

Colombia’s 5.9 percent growth last year was the fastest since gross domestic product jumped 6.9 percent in 2007, the most in three decades.

The economy could see Asia-like growth of 6 percent to 7 percent “for decades” if the government strikes a peace deal with rebels in soon-to-begin negotiations, Finance Minister Mauricio Cardenas said in an interview last week.

The Revolutionary Armed Forces of Colombia, or FARC, agreed to sit down with President Juan Manuel Santos’ government next month in Oslo for the first talks in a decade aimed at ending Latin America’s longest-running armed conflict.

Credit Rating

Colombia won an investment-grade credit rating last year for the first time since 1999 as improved security bolstered economic growth and attracted record foreign investment. The government expects foreign direct investment to rise to $17 billion this year, up from a record $13.2 billion in 2011.

Growing domestic demand buoyed credit in Colombia as consumers purchased cars and washing machines. Total loans outstanding jumped 24 percent in August 2011 from a year earlier, the biggest increase in more than three years. Loans outstanding totaled 231.1 trillion pesos ($128 billion) in July, according to the most recent data available from Colombia’s financial watchdog, an increase of 17 percent from a year ago.

Acquisitions by Colombian lenders have also led banks to tap overseas markets, said Credit Suisse’s Chouchani.

Regional Takeover

Grupo Aval bought General Electric Co.’s BAC Credomatic, Central America’s second-largest bank, for $1.9 billion in 2010. This year, Davivienda, Colombia’s third-biggest bank, agreed to buy HSBC Holdings Plc’s operations in Costa Rica, El Salvador and Honduras for $801 million, and Banco GNB Sudameris purchased four of HSBC’s South American businesses, including the Colombian unit, for about $400 million in cash.

In an interview after Bancolombia’s record bond sale earlier this month, Chief Executive Officer Carlos Raul Yepes said he is readying the lender for possible takeovers in the region.

Bancolombia, Davivienda and Grupo Aval are all rated Baa3 by Moody’s Investors Service, the lowest level of investment grade. Banco GNB Sudameris is rated one step below at Ba1.

Grupo Aval sold the 10-year bonds last week to yield 4.8 percent, which compares to the 5.38 percent offered for the $600 million of five-year securities sold in January. The bonds due 2022 are yielding 4.95 percent today.

“We are seeing significantly oversubscribed books and guidance being revised lower and lower,” said Alliance Bernstein’s Khan. “There’s a lot of money chasing these new issues.”

To contact the reporters on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net; Boris Korby in New York at bkorby1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net.

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