Chile Car Dealer Gildemeister Asks Bondholders to Take Loss

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Automotores Gildemeister SA, Chile’s only Hyundai Motor Co. dealer, wants investors to accept losses of as much as 50 percent in the country’s third corporate-bond restructuring of the past 12 months.

Gildemeister is asking investors to surrender as much as $700 million of dollar-denominated bonds due in 2021 and 2023 as part of a debt swap intended to strengthen the company’s capital structure, according to a statement. In return, investors would receive as much as $690 million worth of bonds due in 2020 and non-interest-paying certificates maturing in 2035, the company said.

Traders had been bracing for a bond restructuring from Santiago-based Gildemeister after a plunge in the peso drove up the company’s cost of importing vehicles, just as a slowdown in Chile’s economy sapped sales. The proposed debt swap may be a tough sell because it would be worth as little as half of the existing bonds’ face value, according to brokerage GMP Securities LLC.

The proposed exchange “leaves bondholders with the stick while local banks and the company’s shareholders keep on enjoying the carrots,” GMP analysts in New York wrote Tuesday in a note to clients. “In our view, it is unlikely that the company will get the 50 percent-plus approval needed.”

The company, which sells the vehicles from Seoul-based Hyundai through more than 100 dealerships in Chile and Peru, had raised prices yet couldn’t fully pass along the higher cost of its imports.

Foreign Currency

Diego Torres, the head of emerging-market credit research at MCC Securities Inc. in Santiago, said in a phone interview that the proposed $330 million of non-interest-paying notes would be hard to trade and practically worthless, partly because they’re denominated in Chilean inflation-linked units. That’s likely to make them unattractive to foreign investors, he said. They also pay no interest and don’t mature for 20 years.

Even the new $359.9 million of interest-paying bonds, due in 2020 with a coupon of 9 percent, would probably trade below face value, Torres said. The yield on Gildemeister’s 2021 bonds is now close to 30 percent.

“The terms of this exchange are very disadvantageous,” he said.

Bonds Climb

The company’s bonds due in 2023, which had fallen as low as 35 cents on the dollar, rose after the announcement, since investors had been bracing for terms that were even worse.

They climbed 3.2 cents to 37.16 cents on the dollar at 1:10 p.m. in New York, according to TRACE, the bond-price reporting system of the Financial Industry Regulatory Authority.

Gildemeister had tripled its debt load during the past four years to expand amid a consumer-spending boom in Chile. Since then, economic growth in Chile has fallen to its slowest in five years, sapping demand for cars.

The proposed debt swap would reduce the company’s annual interest payments to about $30 million from $53 million, according to Bloomberg calculations.

“If this goes through, it will be good for the company as it will reduce annual interest payments and lower currency risk,” Felipe Lubiano, an analyst at Credicorp Capital, said in a phone interview from Santiago.

Gildemeister’s debt restructuring would be the third in a year after bus company Inversiones Alsacia SA last year used a debt exchange to delay principal payments to 2018. The new Alsacia bonds traded last week at 67 cents on the dollar. Retailer Empresas La Polar SA completed its local-debt restructuring in December.

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