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Colombia’s Verizon-Like Deal Signals More to Come: Andes Credit

Ecopetrol SA (ECOPETL), Colombia’s state-controlled oil producer, sought to drum up demand this week for notes due in five and 10 years in its first overseas offering since 2009. As it fielded $12 billion in bids, the company tacked on a 30-year bond and swelled the sale to $2.5 billion.

The deal, coinciding with Verizon Communications Inc. (VZ)’s record-setting offering this week, is Colombia’s biggest ever, signaling renewed demand for the South American country’s debt after the longest drought in almost two years. Ecopetrol’s $1.3 billion of 10-year bonds, the biggest portion of sale, was priced to yield 3.05 percentage points above Treasuries, less than the 3.18 percentage point premium for similar-maturity notes in emerging markets that share its BBB rating.

Borrowers are racing to obtain debt financing while the Federal Reserve’s unprecedented bond buying program keeps borrowing costs down in emerging markets, according to Credit Agricole SA. (ACA) Empresa de Energia de Bogota SA, the capital’s power utility, said it’s seeking to sell bonds overseas soon. Latin American dollar debt issuance has reached $3.7 billion this month, more than the total amount raised in August, data compiled by Bloomberg show.

Photographer: Paul Smith/Bloomberg

Ecopetrol's sale on Sept. 11 was 67 percent larger than the previous record of $1.5 billion sold by the Bogota-based company in 2009. Close

Ecopetrol's sale on Sept. 11 was 67 percent larger than the previous record of $1.5... Read More

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Photographer: Paul Smith/Bloomberg

Ecopetrol's sale on Sept. 11 was 67 percent larger than the previous record of $1.5 billion sold by the Bogota-based company in 2009.

“There was definitely demand for the credit, that’s undeniable,” said Jennifer Stubbert, a fixed-income trader at Credit Agricole’s Miami brokerage unit. “For good-quality credit, I see the demand is there, and it’s seeming like borrowers are all trying to enter through this tiny window at the same time, before it closes.”

Regional Issuance

Ecopetrol’s sale on Sept. 11 was 67 percent larger than the previous record of $1.5 billion sold by the Bogota-based company in 2009. Prior to Ecopetrol, six Colombian companies sold bonds this year totaling $2.9 billion.

Avianca Holdings SA’s $300 million sale of seven-year notes in May had been the most recent.

Verizon sold $49 billion of bonds this week in eight parts in the biggest company debt offering ever. The New York-based company’s $15 billion of 30-year debentures is the biggest portion of the eight-part deal.

The main buyers of Ecopetrol’s bonds were portfolio managers in the U.S., who are looking to make a long-term investment, an Ecopetrol press official said in an e-mailed reply to questions.

While Ecopetrol issued at less than the market rate, its three new bonds jumped in the first trading day after the sale. Debt due in 2023 rose 4.5 cents on the dollar from the issue price to 103.5 cents and the 2018 bond gained 1.4 cents to 100.9 cents.

Bond Pipeline

The 30-year bonds jumped 4 cents to the dollar to 103.5 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Colombia’s potential pipeline of dollar-denominated bond sales includes Empresa de Energia de Bogota, which said last month it may sell more of its 2021 dollar bond.

Chief Executive Officer Sandra Fonseca said yesterday that the company will sell bonds overseas “very soon,” but declined to give a date. The company is also seeking “significant” bank credit lines, she told reporters.

Bancolombia SA (BCOLO) had said it may delay a potential bond sale, according to chief executive officer Carlos Yepes. Colombia’s largest lender may decide against selling bonds this year because of “market conditions,” Yepes said on Aug. 30.

Bancolombia isn’t planning a sale this year, a press official said in an e-mailed response to questions.

Initial Projections

Issuers will find demand for bonds through the rest of the year, and the next sale may come in the first week of October, according to Carlos Sanchez, the head of fixed income at Credicorp Capital’s Colombia unit.

Ecopetrol paid at least 20 basis points, or 0.20 percentage point, less than initial projections for each of the three maturities it sold, data compiled by Bloomberg show.

The projected borrowing costs started at about 300 basis points above Treasuries for the five-year bonds and 325 basis points for the 10-year notes, according to people familiar with the matter, who asked not to be identified because they weren’t authorized to comment publicly.

Three-Part Offering

The sale turned into a three-part offering after a 30-year issue was added with a projected 375 basis point premium.

The extra yield that investors demand to own Colombian government dollar bonds instead of U.S. Treasuries was little changed at 186 basis points yesterday, according to JPMorgan’s EMBIG index.

Colombia’s five-year credit default swaps, contracts protecting holders of the nation’s debt against non-payment, fell one basis point to 122 basis points, according to data compiled by Bloomberg.

The peso yesterday reached a two-week intraday high of 1,916.80 per U.S. dollar, advancing in part on speculation that Ecopetrol would bring home some of the dollars to Colombia. Finance Minister Mauricio Cardenas said the day of the sale that most of the funds would be used abroad.

“It dictates a different dynamic going forward for emerging market issuers as a whole,” Pedro Pereira, a Latin America bond analyst at Bank of America Corp., said in a telephone interview from New York. “For sure, it should be a catalyst in terms of supply out of emerging markets.”

To contact the reporters on this story: Christine Jenkins in Bogota at cjenkins28@bloomberg.net; Andrew Willis in Bogota at awillis21@bloomberg.net

To contact the editors responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net; Michael Tsang at mtsang1@bloomberg.net

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