Caribbean & Central America – NEW ISSUE Update

8 April 2014


The new issue market has proven quite resilient in 2014 thus far. This week we recap some of the new bond issues throughout the region. We often have clients ask; ‘what’s in the pipeline?’ However, with Investment Grade (IG) entities (in the Caribbean especially) slow to bring new paper to market, the focus has been on the more speculative names.

The four most recent regional credits listed below were of interest largely because of name-recognition (apart from Banco Agromercantil), and despite the most complex of analyses, this tends to be the point from which even the largest institutions begin their investment process.

Issuer

Coupon

Maturity

Rating

Indicative Offer

Indicative Yield

Date of Issue

Digicel Ltd. 7.125% 04/01/22 Moody’s Caa1 101.75 6.76% 03/19/14
Columbus Int’l Inc. 7.375% 03/30/21 S&P B 103.35 6.69% 03/24/14
Costa Rica 7.00% 04/04/44 S&P BB 100.15 6.99% 04/01/14
Banco Agromercantil 6.25% 04/10/19 Fitch BB 101.50 5.90% 04/03/14

 

All of these were issued at par (100.00), and given the quotes shown in the table above, it just goes to show that there remain strong institutional bids for speculative credits once there is solid liquidity.

Digicel placed USD 1bn in 7.125% senior notes due 2022, and announced tender offer for DLLTD 10.5% 2018s. Digicel remains such a widely traded credit due to its inclusion on bond indices, FINRA’s Trade Reporting and Compliance Engine® (TRACE®), large US holders, and participation by the Jamaican market. The 22s currently offer a ~120bps yield pick-up over the 21s, and may be worth a look while it’s still early.

Columbus International Inc. which operates under the Flow retail brand throughout the region issued a mammoth USD 1.25bn bond, which is just less than double the size of their existing 2014 note. Guaranteed by subsidiaries that as of Dec. 31, 2013 represent 71.5% of consolidated assets and 71.9% of consolidated revenues, this bond was one of the few ‘slam dunks’ of the new issue market – with a 3pt+ appreciation in just one day. Initial pricing thoughts were closer to 7.75%, but the predictable tightening did nothing to scare off market players.

Costa Rica, an established issuer, despite many unsure of this credit, has held firm in its early trading days. Although the liquidity is desirable compared to regional sovereigns and corporates, 7% is cheap (from the issuer’s perspective) for a ‘BB’ credit.  I would prefer to take Colombia or Mexico sovereign risk for that duration, but of course that means sacrificing return.

Lastly, Banco Agromercantil out of Guatemala is the Central American country’s highest capitalised bank and has provided banking services under this name since 2000, before which it was known as Banco Agricola Mercantil. The universal bank is primarily involved in the corporate sector and had a market share of 8.09% and 8.03% in terms of assets and deposits respectively, according to a Fitch ratings agency report. (Bond Radar)

The ‘flippers’ must have been quite happy with this one – being in the money by 1pt+ already. What was of interest to me here was the 40% stake that Bancolombia (Colombia’s biggest bank) has in Grupo Agromercantil (Banco Agromecantil’s parent). With just USD 300mm issued, I’d expect significant action in the short term. Certainly one to watch!

Value in places you might not expect? That’s how it tends to work in bond markets, especially within our region. We’ve included the latest rating reports for the issuers mentioned here, and continue to pride ourselves in giving great colour on names that we know, and as much information as possible on those that we don’t.

So, for more information, facts & figures, or to ask further questions, contact us at 1-868-628-1175 or email us at info@nullfirstlinesecurities.com.

Gerard Stephens

Trader

 

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