Cencosud SA, Chile’s largest retailer by sales, rose the most since 2011 and its bonds surged after agreeing to sell credit-card units in Chile to Bank of Nova Scotia.
The shares jumped 7.4 percent to 1,846.7 pesos at the close in Santiago while volume surged to 2.1 times the daily average of the past three months. Bonds maturing in 2021 increased 2.34 cents, the biggest increase on record, to 106.33 cents on the dollar. The securities due in 2023 advanced 2.84 cents to 101.2 cents.
The retailer, seeking to shore up its balance sheet and maintain an investment-grade credit rating, would sell 51 percent of its credit card and consumer loans business in Chile to Scotiabank for $280 million with an option to repurchase the stake in 15 years. Scotiabank would also take control of Cencosud’s $1 billion loan portfolio, allowing Cencosud to reduce its debt leverage.
The deal would reduce net debt, “leaving most of the risk of losing investment grade behind,” analysts at Banco Santander SA including Francisco Errandonea, Reinaldo Santana and Joao Mamede said in an e-mailed research note today. Cencosud has the lowest investment-grade level at Fitch Ratings and Moody’s Investors Service, which have negative outlooks.
Fitch said in an e-mailed report today that if Santiago-based Cencosud continues selling “non-core” assets and reaches positive free cash flow this year, the ratings company will probably revise its outlook to stable from negative.
Scotiabank said the deal will help expand lending operations in Chile, where it’s the seventh-largest lender according to the local regulator.
The deal “gives us access through the partnership with Cencosud to the No. 1 retailer in Chile for potential development of that customer base,” Wendy Hannam, Scotiabank’s executive vice president for Latin America, said by phone.
A similar deal for Cencosud to sell the credit-card units to Itau Unibanco Holding SA was called off in December, and the next month the Brazilian lender agreed to buy Chile’s Corpbanca.
Once Cencosud’s deal with Scotiabank is completed, its ratio of net debt to earnings before interest, tax, depreciation and amortization in 2014 will probably fall to about 3 times, Chief Executive Officer Daniel Rodriguez said today at a press conference in Santiago. A ratio above 3 would put the company at risk of losing its investment grade, Santander said in its report.