Goldman-Led Hunt for Corpbanca Suitor Spurs Bond RallySebastian Boyd
Bond investors are signaling they want Chilean billionaire Alvaro Saieh to sell his bank.
Corpbanca’s $800 million of notes due 2018 have returned
1.9 percent since the Saieh-controlled bank said Nov. 29 that it was in preliminary talks with potential bidders. The gain is bigger than that of any other high-grade bond in emerging markets, according to data compiled by Bloomberg.
Saieh, 64, is entertaining offers from Sao Paulo-based Itau Unibanco Holding SA and Bilbao, Spain-based Banco Bilbao Vizcaya Argentaria SA. Colombia-born Saieh, who has a doctorate in economics from the University of Chicago, has hired Goldman Sachs Group Inc. and Bank of America Corp. to sell a controlling stake in Corpbanca, two people familiar with the matter said Nov. 28.
“Being taken in by a bigger, more diverse bank is positive,” Aaron Grehan, who helps manage $4.5 billion of emerging-market debt at Aviva Investors Ltd., said in telephone interview from London. “It’s a credit-improvement story. The headlines last week caused a change in sentiment.”
Moody’s Investors Service today cut its ratings on Corpbanca’s bonds by one step to Baa3, the lowest investment grade, and warned that it may lower the rating to junk. The bank’s closeness to his retailer, SMU SA, and its increased leverage following a spate of acquisitions has left it with less funding flexibility, the rating company said in an e-mailed statement.
In November, Saieh completed a $300 million capital injection into SMU, which had violated debt agreements and restated earnings earlier in the year.
The extra yield investors demand to own Corpbanca’s benchmark notes instead of U.S. Treasuries fell to a five-month low of 3.13 percentage points yesterday after reaching a record high of 501 basis points on Aug. 29. The peso gained 0.7 percent to 525.99 per dollar at 11:39 a.m. in New York.
Corpbanca declined to comment on its merger talks, according to an external press official who asked not to be named.
Itau, Latin America’s biggest lender by market capitalization, is one of the banks Corpbanca has approached, said one of the two people, who asked not to be named because the negotiations are private. Corpbanca, based in Santiago, has a market value of $4.22 billion. Saieh and his family directly and indirectly own 76 percent of the bank, according to its most recent annual report.
Itau declined to comment, according to an official who asked not to be named in keeping with company policy.
Paul Tobin, a spokesman for BBVA in Madrid, declined to comment.
Corpbanca’s BBB rating from Standard & Poor’s, the second-lowest investment grade, is in line with Itau’s and one level above that of BBVA. Itau has subordinated bonds in dollars due in 2020 that yield 349 basis points more than U.S. Treasuries. BBVA’s subordinated bonds in dollars due in 2022 yield 336 basis points more than Treasuries.
Speculation that Itau or BBVA may buy Saieh’s Corpbanca hasn’t helped SMU’s bonds. The yield on the bonds rose to 18.58 percent yesterday from 18.4 on Nov. 29. It reached 21 percent on Oct. 30, up from 6.16 percent in April.
Saieh has been selling off assets and has pumped $300 million into SMU in an attempt to help bring the grocery chain into compliance with rules on its bonds that demand lower debt ratios. At the end of September, Corpbanca had made more than $400 million of loans and other credits tied to sister companies owned by Saieh, and the bank accounted for as much as 90 percent of his conglomerate’s profit.
SMU “has had severe issues with working capital and consuming all its cash,” said Soummo Mukherjee, an analyst at Moody’s Investors Service who this week cut the company to Caa1, seven levels below investment grade. “Any hiccup in liquidity would lead to an immediate downgrade.”
Saieh, a former head of research at the central bank, started his career in banking when he accepted an equity stake to join the management of Carlos Abumohor’s Banco de Osorno y La Union. Saieh and Abumohor sold 51 percent of Banco Osorno to Spain’s Banco Santander SA in 1996 and used the profit to build Corpbanca. In the past 24 months, Saieh has spent $2.5 billion buying the Colombian operations of Banco Santander and Helm Bank to expand Corpbanca’s regional presence.
Itau Chief Executive Officer Roberto Setubal told analysts on an earning conference call on Nov. 12 that Chile is a priority market and that the bank is considering acquisitions in Latin America.
“Itau has said it wants to be a Latin American bank, but it’s hard to grow organically so it needs to buy,” Anibal Valdes, an analyst at Barclays Plc in New York, said in a telephone interview. “These are smart guys and they’re not going to pay just any price but it would make sense to be the third-largest private bank in Chile. The banking business is all about scale.”
Even after the rally, Corpbanca’s bonds still offer a premium to peers. The 4.17 percent yield on its notes compares with an average of 3.45 percent for investment-grade banks in Latin America, according to data compiled by Bloomberg.
“It trades at a higher spread than the rest of the banks so the rationale behind the move makes sense,” Jaime Achondo, head trader at Finanzas y Negocios SA Corredores de Bolsa in Santiago, said in a telephone interview.