Bond Traders in Chile Reap Profits From Qatar Air’s Global Push

  • Company said it will buy as much as 10% of Latam Airlines
  • Latam’s bond yields have tumbled on planned capital increase

Qatar Airways Inc.’s decision to extend its global reach is translating into a boom for bond investors in Latin America’s biggest airline.

Latam Airlines Group SA’s $500 million of bonds due in 2020 have jumped since July 12, when the gulf carrier said it will buy as much as 10 percent of the Santiago-based airline. That’s caused yields on the notes to plunge 1.5 percentage points.

The move comes as Latam cuts capacity in Brazil -- the airline’s biggest market -- to cope with lower demand amid the longest recession in more than a century. Fitch Ratings said Qatar Airways’s investment will increase Latam’s cash position to as much as $1.8 billion, versus $1.4 billion at the end of the first quarter. While that’s a welcome boost to South America’s biggest carrier, the company’s deepening woes in Brazil may cool the gain in its notes.

“The bonds rallied a lot as it improves the company’s financial position but risks remain in the market,” said Pedro Pablo Larrain, chief executive officer at asset manager Sartor Investments, which owns Latam bonds. “The yield could move back to around 7 percent and stay there for a while.”

Latam Airlines declined to comment on the specific price move, according to a company official who asked not to be named due to the company’s policy. The official said that the deal will leave the airline in a much improved financial position with all of the money from the capital increase going to strengthen its balance sheet. This lowers the risk of having to refinance any obligations in the medium term and will lead to improved credit ratios, the official said.

The deal is also helping the bonds issued by Tam SA before its merger with Lan Airlines to form Latam. The yield in Tam’s notes due in 2021 has fallen to 8.4 percent from 10 percent before the announcement.

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