Colombian energy company EEB is in talks to raise $400m in new debt in the local bank market. Astrid Martinez, CEO, says she is discussing with a group of banks raising a 3-year bullet bridge loan at an expected rate of DTF plus 450bp-500bp. She notes that the price will likely be some 50bp higher than what might have been achieved prior to September. In the next 2 years, the company will seek a longer-term takeout, likely with international banks. The new debt will finance 2 large gas pipeline projects in Colombia which require total investment of $600m. The remaining $200m for capex will come from EEB’s own coffers. The new debt will elevate the company’s leverage ratio to 3.12x from 2.28x, says Martinez, keeping the company comfortably within leverage limits. Bond covenants say leverage must remain below 4.50x. EEB had originally sought to raise $400m via an equity issue or the sale of a stake to a strategic partner, but those plans gave way to raising debt in the local market. TGI, the company’s subsidiary gas unit, does not have the capacity to raise more debt, says Martinez. EEB’s debt is comprised primarily of $750m in 2017 9.50% notes (TGI), and $610m in 2014 NC4 8.75% bonds, both issued in the second half of 2007. On Monday, Fitch reduced its outlook on the company’s BB rated debt to negative from stable.
Category: Daily Brief
Bolivia’s BMSC Mulls Cross-Border Expansion
Banco Mercantil Santa Cruz (BMSC), Bolivia’s biggest bank, says it is assessing the possibility of cross-border expansion, but that nothing is likely to be signed in the short term. “We’re going to continue investing in Bolivia and we might even explore some opportunities outside of Bolivia, but very very small and nothing that will ever jeopardize our Bolivia operation,” Darko Zuazo Batchelder, BMSC’s vice president, tells LatinFinance. “We’ve been offered a couple of things, one in Peru, one in Argentina,” he adds, saying that these offers of stakes in banks were rejected and that the idea of expansion is still at a very preliminary stage. “We’re looking for opportunities, but nothing has come up yet,” adds Alberto Valdes Andreatta, vice president of finance and international affairs at BMSC.
EEB Outlook Sours
Fitch has cut the outlook on EEB’s debt to negative from stable and affirmed the Colombian state-owned power company’s rating at BB. The move affects some $610m in 2014 senior unsecured notes. The company’s ability to reduce debt leverage in the medium term has weakened, says the shop, pointing to its aggressive growth strategy and unlikely possibility EEB will manage to IPO anytime soon. EEB’s $320m cash position as of September 30 will likely dwindle as it seeks to meet rising domestic demand for gas with new capital investments. “Depending on the size and timing of these potential capital investments, consolidated debt to Ebitda could increase by more than 1 time (x) to more than 4x, which may pressure credit quality,” says Fitch. In the 12 months ended September 30, consolidated debt to Ebitda ratio was 3.1x on $490m of Ebitda and $1.5bn in debt, it adds. In October 2007, EEB sold $610m in 7-year NC4 notes at par to yield 8.75% via ABN AMRO, now RBS. The notes were most recently quoted trading at 86.5-88.5.
Fitch Turns Negative on TGI, Affirms Telefonica
Fitch has affirmed TGI’s foreign and local currency issuer default ratings at BB and cut its outlook to negative from stable. The cut reflects the weakening prospects for Argentina’s TGI to reduce debt leverage over the near to medium term as originally expected, says Fitch. TGI has $750m of outstanding senior unsecured notes due 2017. Fitch says that TGI’s leverage level is 4.2x Ebitda of $215m. Elsewhere, Fitch says Telefonica Chile’s outlook is stable, citing strong liquidity position, cash flow and manageable debt maturity. The agency believes the company, which is 97% owned by Spain’s Telefonica, will generate cash flow of $100m to $150m over the next few years. It also expects total debt to Ebitda to remain stable at or below 2.0x. Fitch also affirmed the company’s local and foreign currency issuer default rating at BBB+.
Ashmore Predicts Early 2009 EM Rally
Despite continued price drops and fund outflows, EM investor Ashmore is predicting a V-shaped recovery for EM and a rebound early next year. “As confidence returns and liquidity increases in early 2009, we expect prices depressed by forced sales to gap up,” says head of research Jerome Booth in a note released Monday. “Hence we believe the opportunity to invest is now,” he adds. According to Booth, there have been significant structural changes for EM debt since the 1990s, including better fiscal and monetary management, large reserve levels, low solvency risk and a much more institutionalized and less levered investor base. Ashmore notes the need for more to be done by policy-makers, banks to start lending again, and increased access to trade finance. But it is characteristically upbeat about the potential for an EM rally. “We expect a V shaped recovery in emerging market growth with economies growing strongly again from the first half of 2009 in many cases, though in developed countries the recession and de-leveraging may take much longer,” says Booth. He anticipates a return of secondary market liquidity following the end of developed world investment bank year ends in November-December. The investor also sees more hedge fund redemptions and associated unwinding, with the process continuing through the first half of 2009. “Also in January, new allocations are expected to be made by those waiting for calendar year end and by those who traditionally make asset allocation decisions in January,” Booth concludes. Ashmore has $32bn under management in EM.
Embratel Heads Off USD Maturity
Brazil’s Embratel has launched a BRL400m issue of 180-day promissory notes paying 118.5% of DI. The telecom provider – which is controlled by Mexico’s Telmex – plans to use proceeds to pay off $178.8m in 11% coupon dollar bonds issued in 2003 that mature December 15. Caixa Economica Federal is managing the sale, which follows several Brazilian corporates’ use of the promissory note market, most recently Telemar’s BRL2bn in 1-year to complete the purchase of Brasil Telecom. Embratel’s investment-grade rival secured funding at DI plus 3%.
Telemar Goes Short to Complete BT Buy
The board of Telemar has approved the issue of BRL2bn in promissory notes to complete its takeover of Brasil Telecom. The 1-year notes will pay DI plus 3%. Bradesco is managing the operation, with Itau and Santander as co-managers. The telecom provider also known as Oi has already this year sold BRL3.6bn in 1-year promissory notes and borrowed BRL4.3bn in the form of 2016 CCB credits from Banco do Brasil to fund the BRL13bn purchase. The need for additional notes comes after a $1bn dollar bond issue failed in September. Last week, Brazil’s government made the necessary legal changes to clear the way for the purchase of BT, which now awaits final regulatory approval. Telemar and BT set a closing deadline of December 21, with the former having to pay the latter a BRL500m fine if it not closed by then. HSBC expects BRL3.8bn in synergies from the tie-up, from workforce reductions, consolidation of IT and operations systems, longer-term capex savings and revenue synergies from the combination of fixed line assets. The shop adds it expects the deal to be approved before December 21.
BNDES Opens BRL6bn Working Capital Fund
Brazilian development bank BNDES has launched a BRL6bn credit line to support the working capital needs of Brazilian companies in the industry, commerce, and non-construction service sectors. The special credit program will make funds available until June 30, at a limit of BRL50m per loan. Funds can be taken out for up to 13 months at rates up to 20.5%, varying according to individual borrowers.
Brazilians Continue Share Buybacks
Bradesco and Brazilian healthcare provider Tempo are the two latest Bovespa members to repurchase sagging shares. Bradesco plans to absorb up to 7.5m preferred shares and up to 7.5m common shares in a program running through May 2009. The bank has a total of 2.04bn shares outstanding, including 551m common and 1.49bn preferred units. Tempo, a healthcare network administrator and claims processor that raised BRL420m in a December 2007 IPO, has meanwhile approved a 1-year program to purchase up to 7.5m shares, or 10% of its float. Bradesco’s common and preferred shares closed Monday at BRL20.19 and BRL23.47, respectively. Tempo finished at BRL2.50.
Italian Operator Picks Up Brazil, Chile Highways
Italian toll road operator Atlantia has agreed to buy stakes in Chilean and Brazilian highways from Spain’s Itinere for EUR420m. The sale is a part of a larger deal also agreed Monday, in which Spanish infrastructure operator Sacyr Vallehermoso is selling Itinere to Citi Infrastructure Investors for a total consideration of EUR7.9bn. The package divested to Atlantia consists of stakes in 6 Chilean and 1 Brazilian road concessions, and maintenance companies, totaling 702km. Atlantia sees the highways contributing EUR60m in Ebitda. The deal is expected to close in Q1 2009, following Citi’s launch of a tender offer for Itinere on the Madrid Stock Exchange.