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Bancolombia Borrows Record $1.2 Billion Amid Takeover Hunt

Sept. 5 (Bloomberg) -- Bancolombia SA borrowed a record $1.2 billion in international debt markets as Chief Executive Officer Carlos Raul Yepes said he is readying Colombia’s largest bank for possible takeovers in the region.

“The most important thing is to be prepared, to be able to move quickly for a potential acquisition,” Yepes said in a telephone interview after yesterday’s debt sale. “This is really about preparation, about having the balance sheet well-structured, in order to facilitate potential acquisitions or potential growth either in Colombia or outside the country.”

Bancolombia, based in Medellin, sold the 5.125 percent subordinated bonds due in 2022 to yield 363 basis points, or 3.63 percentage points, above similar-maturity government bonds, according to data compiled by Bloomberg. The bank sold $50 million during Asian market hours after earlier selling $1.15 billion, according to a filing in Colombia today.

Banco Davivienda SA, Colombia’s third-largest lender, sold $500 million of 10-year subordinated bonds in June at a spread of 438 basis points above similar-maturity government bonds. Government dollar bonds maturing in 2024 yielded a record low 2.98 percent on Aug. 31 and were at 3.02 percent at 3:26 p.m. in Bogota.

Bancolombia, rated an investment grade Baa3 by Moody’s Investors Service, took advantage of tumbling borrowing costs and is interested in acquisitions from the Caribbean to Mexico and across South America, Yepes said.

Dropping Yields

Colombian yields have declined this year as domestic demand and record foreign investment helped drive economic expansion of 5.9 percent in 2011, the fastest since 2007. Growth slowed to 4.7 percent in the first quarter as the European debt crisis curbed demand for the nation’s exports.

Investors demand an average 128 basis points in extra yield to hold Colombian bonds rather than U.S. Treasuries, according to JPMorgan Chase & Co.’s EMBI Global indexes. That is down 63 basis points this year and lower than the 173 basis point spread for Brazil, whose debt is rated one level higher by Moody’s.

Bancolombia reported an 8 percent drop in second-quarter net income to 354.5 billion pesos. The preferred shares are down 5.9 percent this year in Bogota, compared with a 5 percent advance in Colombia’s benchmark Colcap index.

The rally in Colombian bonds this year reduced average yields on dollar debt for the nation’s companies to a record low 4.09 percent on Aug. 8, JPMorgan’s CEMBI Broad index shows. Banks pay an average premium over U.S. Treasuries of 232 basis points globally to sell bonds, according to Bank of America Merrill Lynch indexes.

Yepes said the bank also may consider refinancing given the level of borrowing costs.

“There’s always the possibility of improving a bank’s financial efficiency,” he said. “At any point if there’s the possibility, the window of opportunity to do so, you can do these types of transactions.”

To contact the reporters on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net; Christine Jenkins in Bogota at cjenkins28@bloomberg.net

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

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