Colombia’s state-owned gas producer Ecopetrol attracted $9bn for a jumbo $1.5bn 10 year debut this week, the latest sign of strong investor appetite for high grade Latin credits. The issuer, rated Baa2/BB+, printed the 7.625% notes priced at 99.642 to yield 410bp over US Treasuries through leads Barclays Capital and JP Morgan on Thursday.
After positive feedback from a roadshow in the US and Europe this week, leads sent out pricing whispers of 400bp-425bp over US Treasuries for the SEC-registered global offering. Strong demand for the debut credit and for greater exposure to Colombia risk given the historic dearth of supply of sovereign paper allowed the leads to lower the spread. "There was a lot of demand for the transaction since investors have few opportunities to gain exposure to Colombian paper that is eligible for inclusion in benchmark indices such as JPMorgan’s EMBI," said a banker close to the deal.
The notes attracted $9bn of orders from over 300 accounts. The deal was distributed mainly in the US and Latin America and snapped up by real money asset management funds. Colombia, rated Ba1/BBB-/BB+, was last in the cross-border market in April with a re-opening of its 7.375% 2019 bonds for $1bn — with $4bn of demand — at 458.5bp over US Treasuries. The 2019s were trading at 308bp at the time of the Ecopetrol’s debut transaction, so this deal represents a competitive 100bp concession over the sovereign.
In recent jumbo quasi-sovereign transactions from the region, government-backed entities such as Mexico’s Pemex, Chile’s Codelco and Brazil’s Petrobras have paid 75bp-100bp concessions to the sovereign. As a debut borrower, Ecopetrol’s tight pick-up over the sovereign is impressive and highlights the large pile of cash available for high grade borrowers, said rival bankers.
In addition, the liquidity trail paved for this debut suggests it could serve as a useful benchmark for Colombian public utility company, Empresas Publicas de Medellin. The borrower is expected to hit the international markets in the coming months with a $500m 10 year offering, with lead managers JPMorgan and Bank of America Merrill Lynch.