Colombia’s Richest Man Saves Bank Debt From Junk Ignominy

Billionaire Luis Carlos Sarmiento Angulo’s plan to pump capital into Banco de Bogota SA is helping to stave off a credit downgrade after Colombia’s second-biggest lender agreed to pay $901 million for two takeovers in a month.

The bank’s $500 million of subordinated bonds due 2023 have returned 1.7 percent in July, the most among South American non-government-owned bank bonds with triple-B ratings and similar maturities, according to data compiled by Bloomberg. That’s almost five times the average gain for the 11 bank bonds and compares with a 1.6 percent loss during the period for the 2021 notes from Bancolombia SA, Colombia’s biggest bank.

While Banco de Bogota’s bonds still yield 5.6 percent, closer to the level of a junk-rated security than to their own investment grade of Baa3, Moody’s Investors Service affirmed their status because of the bank’s plan to raise $500 million of capital. The bank’s parent company, Grupo Aval Acciones Y Valores SA, which is controlled by Sarmiento Angulo, announced the capital raise on July 24.

“The market believes in Aval’s capacity to capitalize the bank, and then to get its own funds to pay for it,” Jennifer Stubbert, a fixed-income trader at Credit Agricole SA’s Miami brokerage unit, said in an e-mailed response to questions. “When there’s that type of control, then investors aren’t concerned about the implementation, because they don’t have to deal with opposition.”

‘Available Resources’

Banco de Bogota said June 26 that it agreed to buy Guatemala’s Grupo Financiero Reformador for $411 million. The bank said it would pay for the deal with “available resources.”

Aval announced July 19 that Banco de Bogota would buy Banco Bilbao Vizcaya Argentaria S.A.’s Panama unit for $490 million.

A few days afterward, Bogota-based Aval said it would propose to raise $500 million to support the Panama transaction through a share offering. In a separate e-mail at the time, Aval said it intends to participate in the offering along with minority holders. The acquisition is expected to close by year-end.

Aval owned 66.5 percent of Banco de Bogota’s shares as of July 22, with Sarmiento Angulo owning another 9.6 percent, according to a regulatory U.S. filing. Sarmiento Angulo, 80, owns 95 percent of the voting shares of Aval. He’s Colombia’s richest person with a net worth of $17.4 billion, based on the Bloomberg Billionaires Index.

‘Low Levels’

In May, Aval said it’s considering an equity offering in the U.S. to raise money to capitalize its banking subsidiaries, principally Banco de Bogota.

Aval and Banco de Bogota press officials didn’t reply to e-mails seeking comment. Sarmiento Angulo didn’t respond to an interview request sent to his office.

Without the extra equity at Banco de Bogota, capital ratios once the Panama deal closes “would be reduced from already low levels,” Moody’s said in a July 26 statement. “Any delay or failure to capitalize Banco de Bogota” could lead to negative rating actions, according to the statement.

A cut would have brought Banco de Bogota’s subordinated bonds to junk grade from the current Baa3, which is the lowest investment grade, Felipe Carvallo, an analyst at Moody’s, said in a telephone interview from Mexico City.

Yield Spread

Banco Santander SA analysts Boris Molina and Luis Guzman estimated in a June 18 report that Banco de Bogota had a core Tier 1 capital ratio -- a measure of how well capitalized a bank is -- of 4.1 percent at the end of 2012. That’s “below the 4.5 percent minimum capital ratio and far below the 7 percent level” under international banking standards that’s supposed to trigger dividend restrictions, executive pay cuts or mandatory capital increases, they wrote.

The extra yield that investors demand to own Colombian government dollar bonds instead of U.S. Treasuries dropped two basis points to 175 basis points at 1:52 p.m. in New York, according to JPMorgan Chase & Co.’s EMBI Global index.

Colombia’s five-year credit default swaps, contracts protecting holders of the nation’s debt against non-payment, rose one basis points to 135 basis points, according to data compiled by Bloomberg. The country’s peso weakened 0.2 percent to 1,894.94 per U.S. dollar.

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