Chile's Entel Bonds Surge as Share Sale Dispels Downgrade Fears

  • Mobile-phone carrier announced $523 million capital increase
  • Bonds had underperformed since entry into Peruvian market

Bonds of Chile’s Empresa Nacional de Telecomunicaciones SA rose after the company announced a share sale that analysts say may help the mobile-phone operator avoid a downgrade of its credit rating.

The extra yield, or spread, investors demand to buy Entel’s dollar bonds due in 2024 instead of Treasuries fell 0.37 percentage point to 3.98 percent, pushing the price up by the most on record. The spread on its bonds due in 2026 fell 0.38 percentage point. At the same time, the company’s shares fell 4.3 percent to 5,463 pesos.

Chile’s second largest mobile operator announced it will ask its board to approve plans to sell 350 billion pesos ($523 million) in new shares, according to a filing to regulators. The sale will then have to be approved in a shareholder meeting.

"The plan of the capital increase is to inject funds into the company that will allow it to strengthen our growth strategy in Peru," Chief Financial Officer Felipe Ureta said in an e-mailed statement. Entel entered Peru in 2013 when it agreed to pay $400 million for the assets in that country of Nextel.

The capital increase will help Entel improve its credit metrics and stave off a possible downgrade to junk, according to Jaime Achondo, head trader at Finanzas & Negocios SA. Moody’s Investors Service in February lowered Entel to Baa3, the lowest investment grade, and placed it on a negative outlook, saying the expansion into Peru had reduced its credit quality.

"It clearly is a relief for investors that were concerned about a downgrade to junk. Entel is showing that they are really focused on keeping investment grade," Achondo said by e-mail.

Entel’s bonds have been among the worst performers in the last year among Chilean investment-grade borrowers, losing 6.7 percent. Only notes from carrier Latam Airlines SA have lost more. Chilean investment-grade corporate bonds from emerging markets have returned an average 0.1 percent in the period.

While the bonds rose, Entel’s shares plummeted 4.5 percent to 5,449 pesos at 1:54 p.m. in Santiago, on course for their steepest loss since Dec. 2013.

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