Guatemala’s Banco Industrial priced Wednesday a US$150m 10-year subordinated Tier 2 bond (Ba2/BB) at par to yield 8.25%, coming flat to earlier 8.25% area guidance and at the tight end of low-to-mid 8 whispers. Considered Guatemala’s largest bank, the sub investment grade credit had originally been seeking between $150m-$250m, but capped the deal at the lower end of that range as only $150m could qualify as Tier 2 capital. The bond jumped on the break to trade at 100.75-101.25. While difficult to comp to investment-grade Tier 2 bank issuers that have recently come to market, investors looked at the sovereign, with the deal coming at a quarter point concession to government paper, according to one participating investor. The 144/Reg S notes are secured by a subordinated loan from Bank of America to Banco Industrial, Fitch says. The US bank is transferring its rights to the loan to a trust, which in turn pledges the loan as collateral. Uses of proceeds are slated to repay subordinated debt and to strengthen regulatory capital. The notes are governed by New York law. Banco Industrial was brought to market by sole lead BAML. The issuer last came to market in 2008 when it priced a $30m 60-year NC10 priced at par to yield 9% through Credit Suisse.
Category: Central America
Bco Industrial Whispers On 10-Year
Whispers on Guatemala’s Banco Industrial were being heard at low to mid 8s Tuesday on a $150m-$200m 10-year Tier 2 bond, with pricing expected as soon as today. The lender wrapped up roadshows last week with Bank of America Merrill Lynch. The notes are secured by a subordinated loan from Bank of America to Banco Industrial, according to Fitch which has assigned an expected BB- rating to the offering. The US bank is transferring its rights to the loan to a trust, which in turn pledges the loan as collateral. Considered Guatemala’s largest bank, Banco Industrial has a Baa3 local and Ba2 foreign currency rating from Moody’s. The company’s last foray into the debt capital markets was a $30m 60-year NC10 priced at par to yield 9% in 2008 through Credit Suisse.
CentAm Needs $13bn in Energy Project Financing
Central America will need an estimated $13bn to finance 7,000MW of generation capacity by 2015, according to Hector Rodriguez, coordinator of ARECA, a renewable energy project supported by development bank Cabei. As a result, many countries in the region are slashing taxes and import fees relating to renewable energy projects. The region is looking to satisfy an average annual increase in electricity demand of 6% over the last quarter century. Honduras, for example, passed a law that eliminated all taxes and tariffs on the purchase of materials and services for renewable energy projects, and provides a financial incentive worth 10% of the base price of electricity. “That was definitely part of the motivation in creating our wind project,” Jay Gallegos, CEO of MesoAmerica Energy, tells LatinFinance. The company’s wind energy project, Energia Eolica de Honduras, began operations in June and will generate 102MW. The project cost $260m and was financed primarily by Globeleq Generation. The country plans to build 21 new energy projects, including five large hydroelectric projects with investment price tags ranging from $110m-$700m. Panama, meanwhile, plans to add 22 renewable energy projects over the next four years, adding 1,061MW to its system at a cost of $4.37bn. Italy-based ENEL, Europe’s largest energy provider, has projects in five Central American nations and, according to Francesco Starace, CEO of ENEL Green Power, plans to expand further.
Green Shoots on the Isthmus
The need to reverse Central America’s reliance on fossil fuels is expected to spur an investment boom in renewable energy.
Foreign companies have responded, but challenges lie ahead.
Record Growth Expected for Guatemala Remittances
Guatemala’s central bank expects remittances to increase 5.3% to an all-time high of $4.35bn in 2011. The growth expectations are encouraged by recent strong performance for the first 5 months of the year and an improved US labor outlook, where most remittances to Guatemala originate, according to a JPMorgan report. May remittances to Guatemala surged 16.3% to $415m from $357m the year before, when remittances grew by only 7.3%. May’s favorable performance brings total remittance volumes up $1.76bn for the first 5 months of the year, up 10.5% from the corresponding period of 2010. Given projected growth in nominal GDP, however, remittances as a percentage of GDP will likely fall below 10% for the first time since 2003, closing 2011 at 9.8%. Guatemala remittances totaled $4.13bn in 2010, $3.91bn in 2009, and $4.31bn in 2008.
Expectations Low for CentAm, Caribbean Issuance
Despite welcoming conditions in the DCM, countries and corporates in the Caribbean and Central America aren’t expected to offer much in the way of new issuance in the next 6-12 months, speakers on an EMTA panel say. With El Salvador, Panama and Jamaica having issued this year, only the Dominican Republic – with $700m approved and Barclays and JPMorgan mandated – appears close to issuing. “Trinidad has $300m in the budget, but whether it does it or not depends on oil revenues,” says Franco Uccelli, senior economist at JPMorgan, noting that oil prices are much higher than the $65 level Trinidad anticipates in its budget projections. Costa Rica has also mentioned issuance following last year’s ratings upgrade, though the panel notes the benchmark-sized deal it would like would still require congressional authorization. Though cross-border corporate issuance is accelerating in other parts of LatAm, panelists don’t expect the trend to reach CentAm and the Caribbean. “The corporate sector is not as developed in these countries, and those that need to fund themselves are able to do so in the local markets,” says Sean Newman, EM portfolio manager at GE Asset Management. The local offerings of commercial paper, bank loans and multilateral financing are usually enough for large Caribbean and CentAm companies, many of whom have operations only in their domestic market. “There is not that great of demand from CEOs to establish international benchmarks or diversify their funding needs,” Newman says. All spoke on an EMTA panel in New York Wednesday.
Guatemala Remittances Increase 7.8%
Remittances to Guatemala increased 7.8% in April, to $371m from $344m the year before, when they grew by only 1.4% from 2009, according to a report by JPMorgan. April’s favorable performance, which extended the streak of monthly gains to14, took the tally for the first 4 months of 2011 to $1.34bn, up 8.8% from the corresponding period in 2010. Remittances totaled $4.13bn for the full year 2010, 5.5% higher than 2009. Remittances as a percentage of GDP actually fell to 10.0% in 2010 from 10.4% the year before. The central bank expects remittances to increase 5.3% to $4.35bn for the full year 2011 due to increasing US growth. Given projected growth in nominal GDP, remittances as a percentage of GDP are likely to fall to 9.8%, marking the first time since 2003 that it has dropped below below 10%.
No Issuance for Guatemala in 2011
Guatemala is unlikely to go to the international debt markets in 2011, according to a report by Citi. Guatemala’s congress rejected a proposal to issue $420m in external debt. The government needs to raise $280m to pay down amortizing debt, equivalent to 8% of the 2011 budget, according to finance vice minister Marco Livio Diaz. Citi has said that potential spending cuts are possible and that it does not expect repayment problems. External debt up to March 2011 was $5.5bn, while net internal revenues were almost $6.4bn. Guatemala is expected to increase local debt issuance as a result, which has already been approved by congress, adds Citi.
Giants in the Playhouse
Three major telecom companies are slugging it out in Central America. With growth starting to plateau, the player with the best technology may prove the winner.
Panama’s Growing Pains
Rapid growth is still predicted, but the country is encountering speed-bumps along its way. Maintaining fiscal discipline and inflationary pressures will be among the challenges.