Capital flows to emerging markets plunged in August last year. Data from the Institute of International Finance showed that inflows fell from a monthly average of $38 billion in May, June and July to $9 billion in August. The prospect of rising US rates and geopolitical tensions were both likely to have been factors.
But that same month, Colombian development bank Financiera de Desarrollo Territorial, or Findeter, launched its first global bond in pesos, the first such deal in 18 months.
The bond received orders worth $1.3 billion, almost three times the size of the $500 million-equivalent bond. The 10-year note paid 7.875% and was priced to yield 8.125%, tighter than the banks’ initial price thoughts of 8.25%. Bank of America Merrill Lynch and Deutsche Bank were bookrunners. The legal advisers were Brigard & Urrutia, Gómez-Pinzón Zuleta, Milbank, and Shearman & Sterling.
Standard & Poor’s and Fitch rated the bond BBB. The deal came shortly after Moody’s upgraded Colombia’s sovereign local debt to Baa2, from Baa3. It helped that Colombia’s economy was on track to expand more than 5% in 2014, outshining many other economies in Latin America, including the two largest, Brazil and Mexico.
“Four years ago, we opened a process in which we were looking to diversify our sources of funding,” says Rodolfo Zea, deputy chief financial offer at Findeter. The bank relies on local markets for 80% of its needs but wanted to step into the global peso market, too, and the bank announced its intention to do so in January 2014, he says.
Findeter and representatives from Colombia’s finance ministry hit the road in July. They presented the issuance in pesos but had in the back of their minds that they could switch to dollars if needed, Zea says. The limited dollar-peso swap market meant they preferred to issue in local currency.
Zea says that called for a double act — convincing investors that Findeter was an attractive investment and doing the same for Colombia. The issuer, and the country, both excelled.
“Despite not having an explicit guarantee from the sovereign, we showed that we were accompanied [on the roadshow] by the federal government, which gave it a lot of strength,” Zea says. LF