Colombia Bond Feeding Frenzy Continues

Investors’ hearty appetite for Colombian credit shows no sign of waning, with Empresas Publicas de Medellin (EPM) getting more than $6.5bn in orders for a of $500m in 2019 bonds. The municipally owned Colombian utility priced at 98.292 with a 7.625% coupon to yield 7.875%, or UST+432.5bp, the tight end of price guidance. Investors and analysts had expected at least 8% for the first-time issuer. The yield is about 140bp-145bp wide of the sovereign, and follows Ecopetrol’s 2019 bond which last week priced about 100bp over Colombia, at UST+410bp, and garnered $9bn in demand. Bankers away from the deal say the pickup to the sovereign is within an acceptable range of 125bp-150bp. “I think we came at the right price. The market has been very good in the last week,” EPM CFO Oscar Herrera tells LatinFinance. He notes that DCM should remain open for other corporates. Despite extraordinary demand, Herrera says EPM could not have upsized without additional government approval. He adds that a pickup of 142bp to the sovereign is appropriate for a debut issuer. The bond was trading up 1.5-2.0 points in the gray, according to investors, who expect it to rally further. “I see about 40bp in it, so I think it might still have a way to go,” says a participating EM investor. Some 250 accounts came in, according to bankers on the transaction, with about $2.40bn from the US, $1.80bn from Colombian accounts, and $1.25bn from Europeans. JPMorgan and Bank of America-Merrill Lynch managed the sale, rated Baa3/BB+. Proceeds will help fund the utility’s ambitious growth plans, which include international expansion.