Argentina’s Transportadora de Gas el Sur (TGS) rarely goes to the market – but when it does, it makes a splash.
The company is Latin America’s largest pipeline operator, with 9,248 km of pipeline crisscrossing Argentina. It transports 60% of the gas consumed in Argentina and can move up to 83 million cubic meters of gas per day.
With Argentina starting to monetize its vast Vaca Muerta shale oil and gas formation, TGS, always on the lookout for growth opportunities, decided it was time to return to the market.
Last July, the company placed $490 million in 2031 bonds, paying a coupon of 8.5%. The deal, which wins Corporate High-Yield Bond of the Year, was nearly 4 times oversubscribed. It was the company’s first cross-border deal in more than six years, coming, as it did, against the backdrop of a challenging domestic environment characterized by hyperinflation and regulatory uncertainty.
“The market knows us and our banks told us that investors were ready for us,” says Leandro Pérez Castaño, TGS’ financial and investor relations manager. “We were very pleased with the conditions.”
Pérez says the funds were raised to repay a 2018 bond maturing in 2025, which he said was the company’s only significant debt, as well as for the company’s continued expansion.
Fitch assigned a “B” rating to the issuance, stating that the company’s ratings “are underpinned by its robust business profile,” characterized by limited exposure to commodity price fluctuations, a strong market position as the largest gas transportation service provider in Argentina, and low leverage.
Apart from repaying debt, TGS has two major projects under development for gas coming out of Vaca Muerta, which holds 308 trillion feet of reserves, according to the U.S. Energy Information Administration.
The first is an expansion of the Perito Moreno pipeline that was inaugurated in July 2023. It is currently transporting 21 million cubic feet of gas daily. The TGS proposal, which includes a new section of pipeline and compressor stations, would increase capacity to 35 million cubic feet. Investment would be around $700 million.
While TGS proposed the project, the government decided that it would be in the nation’s interest to open it up to an international bidding process.
TGS also has proposed a project that would extract butane and propane from Vaca Muerta, creating a new value stream.
A second project involves a plan to remove liquids, butane and propane from Vaca Muerta gas, creating a new export opportunity for the country. The project contemplates exporting the full volume of production.
Pérez says the company fully expects its investment projects to receive approval the governments new incentive mechanism, or RIGI, for large-scale. President Javier Milei’s government launched RIGI to attract investment. It can be used for project over $200 million and includes stability agreements, in addition to tax incentives.
Pérez says TGS would have no qualms about returning to the market for these projects and that the market would respond positively.
“We projects that are taking shape and there are many other opportunities. We never dismiss anything. If we see an opportunity and our shareholders agree, we will go back to the market,” he says.
Counsel to Issuers: Salaverri, Burgio & Wetzler Malbran; Skadden
Joint Lead Managers: Citi; Itaú BBA; JP Morgan; Santander
Counsel to Joint Lead Managers: Cleary Gottlieb; Bruchou & Funes de Rioja
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