Reopening markets
Telefonica del Peru became the first Latin American corporate to tap the cross-border local currency market in about a year and half in April, proving that demand existed in an asset class where windows can prove fleeting.
Executing such trades is tricky at the best of times as foreign accounts are often reluctant to participate in deals where they must do their homework on foreign exchange, country and credit risks.
The company’s ability to access the market was all the more notable for its split rating, leaving it straddling both high-grade and junk territory. It was the first such corporate out of the region to raise money this way since 2013, in what is traditionally the domain of higher quality credits.
While Telefonica is the largest telecommunications company in Peru, it has seen intense competition in the mobile market after the entrance of Chilean competitor Entel, and investors and rating agencies had to be convinced that such pressures would eventually ease off.
“Everyone understood what Entel was doing was unsustainable,” said one banker on the deal. “The future of the company and getting back margins was understood to be part of the story.”
The company has been a frequent issuer in the local market but had long looked at a local currency trade in the deeper international market where it could tap in size.
And with the US Federal Reserve’s about-turn on its rate hiking programme earlier in the year sparking a renewed hunt for yield, April seemed like a perfect window for Telefonica to try its luck in the cross-border market.
After making a broad sweep at investors in London, New York, Boston, Los Angeles, Lima and Santiago, the company moved forward with a S1.7bn (US$515m) eight-year amortiser that had a seven-year average life.
After guiding the deal at 7.5% (plus or minus 12.5bp), leads Bank of America, BBVA and JP Morgan priced the deal at a yield of 7.375%, some 25bp inside initial price thoughts of 7.625% as demand hit S3.5bn.
About 53% of orders came from international accounts with the rest of being generated locally as leads found pockets of demand partly from investors dedicated to corporate local currency plays.
Telefonica’s success quickly drew the attention of other corporates hoping to raise debt in their own currency. Peruvian consumer outfit Alicorp, rated at a higher Baa3/BBB–/BBB, followed just a week later with its own S1.64bn eight-year bond.
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