Ecopetrol Breaks Silence in Risk-on Day for LatAm Markets

Posted by Joseph Keefe June 23, 2015

A recovery in LatAm debt spreads opened a window for Colombia's Ecopetrol on Tuesday when it printed a US$1.5bn 11-year bond - the state-owned oil company's first debt issue in nine months.

Optimism over Greek debt talks spurred risk buying on Tuesday, leaving LatAm debt spreads tightening against a weaker US Treasury market, and also benefiting the oil credit that has received a battering in secondary this year.

"We are trading well today and are tighter across most credit spreads," said a New York based trader focused on Latin American credits. "I guess most people think a Greek deal will get done or they will kick the can down the road."

Even with Heinz's jumbo US$10bn multi-tranche deal in the US high-grade market, Ecopetrol came on a relatively quiet day in the primary market, leaving the runway open for the Colombian borrower.

The deal, which saw books peak at around US$4.7bn, marked the issuer's first such foray since this year's dramatic dip in crude prices left investors fretting about the quasi-sovereign borrower.

Indeed, the company's bond prices have been on a roller-coaster ride since November last year.

Its 4.125% 2025s hit a 91 cent trough several times over that period, only to bounce to a year-to-date high of 98.125 and then tip back to around 92.50-93.00 just prior to the deal's announcement.

Those low secondary levels essentially disqualified the existing 10-year from being retapped and hence the borrower opted for a new 11-year benchmark instead.

Testing waters at what was considered generous initial thoughts of 320bp area, leads were able to squeeze guidance to 310bp area (plus/minus 5bp) before pricing the deal at 99.328 with a 5.375% coupon to yield 5.457% or Treasuries plus 305bp.

Even there, bankers and analysts spied some upside against the 4.125% 2025, which had been trading at around 280bp on a G spread basis, or versus the 295bp spread that one trader considered to be fair value on a new 10-year.

The higher coupon and yield on the new 2026s were also seen as favorable for holders of the existing bonds who were expected to be compensated for the higher price if they were to switch over to the new securities.

"Even with lower oil prices it is still a low leveraged quasi sovereign," said a corporate debt analyst.

The bond jumped in the grey to be bid as high as plus .50 only to trade down to plus 3/8 to 7/8 over reoffer. In the end, the deal saw demand peak at US$3.5bn from the US, US$1bn from Europe and US$200m from Asia.

PIPELINE
Grupo Posadas is on the road through Citigroup, Bank of America Merrill Lynch and JP Morgan ahead of a possible USD 144A/Reg S bond sale. The company, rated B2/B/B+ by Moody's/S&P/Fitch, saw
accounts in Boston on Tuesday and will head to New York on Wednesday.

Jamaica has started investor meetings via Citigroup. The country, rated Caa2/B/B-, saw accounts in Germany on Tuesday and wind up in Amsterdam on Wednesday.

Meetings are being described as a non-deal roadshow, but markets have been expecting the sovereign to raise funding to retire a PetroCaribe loan owed to Venezuela.