Chile’s Enap battles on to price $500m bond

06/08/2010 | Sid Verma

Chilean state oil company Enap paid up for its $500m bond issue with a 10 year 5.303% deal, as its high debt burden and plummeting creditworthiness conspire to hike borrowing costs.

Chilean state oil company Enap paid up for its $500m bond issue with a 10 year 5.303% deal on Thursday night. The deal comes at a difficult time for the borrower, which is saddled with a high debt burden and plummeting creditworthiness.

Enap, rated A3/BBB-/A, was last in the market in July 2009 with a 10 year $300m bond. This latest 144A deal, coming soon after the sovereign’s blowout $1.52bn bond last week, came essentially flat to its 2019s, with the coupon 100bp cheaper for the issuer compared with the 2019 deal.

However, bankers said Enap should be compared with its state-owned corporate counterpart, Codelco. At launch, Enap’s 2019 notes offered a 100bp concession to Codelco’s 2019s. By contrast, this week’s deal offered a 130bp concession over the copper producer, "which is historically cheap", said a banker not involved in the deal.

Last week, the Chilean sovereign issued a $1.52bn bond, split between dollars and pesos, achieving the lowest ever spread for a Latin American sovereign at 90bp over US Treasuries. As the Enap deal launched, the notes were trading at 87bp over. On this basis, the state backed Enap notes, with its change of control put, offer a 153bp premium. By contrast, Mexico’s Pemex and Brazil’s Petrobras trade at 130bp and 85bp relative to the sovereign, respectively.

Bank of America Merrill Lynch, BBVA, BNP Paribas and Scotia Capital were the joint bookrunners for the sale. A banker on the deal said the 2020s attracted $4.25bn of demand from over 280 investors with "large participation from investment grade accounts, driven by the scarcity of high quality Chilean paper while Enap is an infrequent issuer".

"I am pretty surprised by the extent of the concession offered but I guess it’s a reflection of all the credit problems the oil company faces," said the head of Latin American debt capital markets at a US firm in New York.

Last week, S&P downgraded the company to BBB- from BBB, blaming volatile cashflow and profitability. Moody’s has also put a negative outlook on its A3 rating, citing the company’s $3.7bn debt. Fitch noted on Wednesday that the company’s deteriorating credit metrics could be partially attributed to February’s devastating earthquake. "Current debt levels are inconsistent with Enap’s rating without the perception of strong parent support," the ratings agency noted.

Proceeds from the debt issuance are expected to pay for short term debt, although total net debt levels will not change. Over the medium term, the company will maintain a high leverage for its rating category, with a greater than six times debt-to-Ebitda ratio, according to Fitch.

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