Colombian state-controlled utility Empresas Publicas de Medellin SA is
tapping the international capital market for the first time with the
sale of $500 million in 10-year bonds to be carried out as soon as
Wednesday, according to a term sheet.
The senior unsecured notes from EPM, as the firm is known, would
yield around 8%, according to the term sheet. Bank of America-Merrill
Lynch and JPMorgan are the bookrunners on the deal.
Moody’s Investors Services rates the credit Baa3, while Fitch Ratings rates it BB+.
Felipe Munoz, who manages a fund of dollar-denominated bonds with
the Colombian brokerage Corredores Asociados, said demand for the bonds
had already reached $3 billion on Tuesday midmorning. Munoz offered to
buy “some” of the bonds.
“Right now, there is a lot of demand for Latin American corporate
bonds because expectation is that companies will weather the crisis and
the yields they pay on bonds are attractive for investors,” Munoz said.
“There is a good balance between perceived risk and return on those
bonds.”
The yield EPM would pay on the bonds is slightly higher than the
7.8% predicted by Bogota-based brokerage Alianza Valores. Alianza’s
Felipe Campos, a market analyst, said the fair yield would be as low as
7.60%, but EPM is paying a premium for first buyers. He said 8% is
rather high for the company.
The yield EPM will pay on the bonds is 70 basis points higher than
that paid by the 10-year bonds state-controlled oil company Ecopetrol
SA (ECOPETROL.BO) sold in New York last week and 150 basis points over
the yield paid by Colombian Treasurys, according to Munoz.
Last week, Ecopetrol tapped the international markets for the first
time. It sold $1.5 billion in 10-year bonds at 99.642 to yield 7.677%.
Demand for the bonds reached $9 billion.
EPM, a utility owned by the Medellin city council, needs a lot of
cash to carry out an ambitious investment plan that includes two new
power plants valued at more than $3 billion. They are scheduled to
begin operating in 2015 and 2018, respectively. EPM invested 852
billion Colombian pesos ($426 million) last year, with COP661 billion
spent on the largest of the two power plants.
EPM is also building a water treatment plant in the municipality of
Bello, Antioquia, 10 kilometers from Medellin, the country’s second
largest city.
EPM booked a net profit of COP1.3 trillion last year, while
earnings, before, interest, taxes, depreciation and amortization, or
EBITDA, totaled COP1.68 trillion. The company didn’t provide
comparative figures for the previous year.
EPM’s assets amounted to COP18.4 trillion at the end of 2008. (Dow Jones)