The Oil Estado de Colombia faces a heavy premium on its return to the global bond marketthe first since 2021, as rates will prove to rise for emerging market borrowers.
Ecopetrol SA is selling US dollar-denominated 10-year bonds with a coupon of about 9.375%, or a spread of 580 basis points compared to similarly rated US Treasuries, according to initial price talks with people familiar with the matter. the driller reference bonds last due in October 2021 with a spread of 307 basis points.
The oil told her that the proceeds will be used to finance part of its 2023 investment plan and to repay the remaining $472 million of a loan it took out to finance the acquisition of Interconexión Eléctrica SA, a Colombian utility that it acquired in 2021. It also has $1.8 million of bonds due September, according to data compiled by Bloomberg.
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“The company has a very ambitious capex plan for the year plus the September 23 maturity and the ISA loan, so I guess they want to start pushing those maturities,” he said. Lorena Reich, a senior credit analyst at Lucror Analytics. “That’s the only reason I think they would pay so much and not wait for better techniques.”
The Ecopetrol’s existing dollar bonds fell on Tuesdaywith the 2043 notes shedding 1.8 cents to 85.4, the lowest level since late November, according to indicative price data compiled by Bloomberg.
The sale, which is expected to be priced on Tuesday, marks the first issuance of 2023 for a major Latin American corporate borrower. Last week, the Mexican government opened the year with a $4 billion bond sale. The region’s debt selling is expected to pick up in 2023 after rising borrowing costs were due to last year’s sales falling to the lowest level since 2008.
“Gustavo Petro wants to generate regional leadership for Colombia”
Since losing investment grade in 2021 and following the election of Gustavo Petro as president, Colombia has been forced to pay higher rates. The government, which owns 88.5% of Ecopetrol, scared investors with planes to phase out oil and coal as part of a transition to renewable energy.
Colombia and Ecopetrol are rated BB+ by S&P Global and Fitch Ratingswhile Moody’s still rates the company at the lowest level of investment grade.
“With Moody’s investment grade rating of Ecopetrol possibly at risk, this may be an opportune time to price this deal,” said Jaimin Patel, a senior credit analyst at Bloomberg Intelligence.
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