In recent years, Chilean state-owened oil company ENAP has embarked on something of a strategic overhaul. It set about prioritizing operational efficiency while also aggressively pursuing a policy to reduce its overall debt.
It came as little surprise, then, to see the company back in the market last July with a deal that sought to further improve its debt profile.
The company sold $600 million in 10-year bonds and repurchased up to $800 million of short-term debt. The deal was well-received by investors and the company achieved its objective of further improving its credit metrics, according to deputy general manager Julio Friedmann Encina.
The process of improving credit metrics started in 2022 with measures to increase operational efficiency, then advanced to an effort to reduce the debt burden and extend maturities including via a series of liability management operations, Friedmann says. The company also divested from unprofitable businesses such as its Argentinian business.
It paid off. ENAP was upgraded to investment grade (BBB-) by Standard & Poor’s in May 2024, thanks to the strength of its operational results and strategic plans. By the time ENAP placed the bonds two months later, the market was aleady well acquainted with its progress.
“We choose then a time to place the deal when conditions were positive. There were few bond deals in the oil and gas sector and little activity from Latin American issuers,” Friedmann says. “So there was appetite for both Latin American and oil companies bonds.”
ENAP placed $600 million in senior unsecured 10-year notes, paying 5.950%. At the same time, it made offers for any and all of its 2026 bonds and up to $200 million of a 2031 issuance, adding its own funds to make sure that it could repurchase a maximum of $800 million of paper.
“We have managed to both extend the average term of our debt and reduce our 2026 and 2031 bonds, which were being traded below par at the time. In the end, we reduced our total debt in $230 million,” Friedmann points out.
In December 2022, the average term of ENAP’s debt reached 7.2 years; it will close 2024 at 9.4. The company’s goal is to reach an average of ten years for its debt and to pay no more than $700 million a year to service it. The result is that ENAP aims to return to global markets as soon as conditions permit. When that happens, Friedmann likes the odds of a sustainability deal, bringing sustainable investors into the fold.
“Investors are always asking us about ESG, and we have just approved a decarbonisation plan for the company,” he says. “We are also making experiences with the production of new low-carbon synthetic and renewable fuels.”
Trustee: BNY Mellon
Issuer’s Auditor: Deloitte
Bookrunners’ Counsel: Linklaters; Morales y Besa
Issuer’s Counsel: A&O Shearman; Garrigues
Joint Bookrunners: BofA Securities; Itaú BBA; JP Morgan; Santander; Scotiabank
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