Long and Local
Local currency bond sales are always tricky as demand for the asset class can quickly fade, but Colombia picked its spot well with a successful debut 30-year nominal rate bond that marked several firsts in the evolution of the country’s domestic curve.
The Ps4.8trn (US$1.3bn) deal was the country’s longest fixed-rate local currency note offering and the first to be executed through a bookbuilding process rather than an auction through which domestic law Treasuries such as this one is typically sold.
The idea was to create in one fell swoop a large liquid benchmark that was index-eligible, and a syndication process that also brought in foreign accounts was seen as the best way of doing that.
“An auction most likely would have made that more difficult,” said Surya Bhattacharjee, head of Latin America debt capital markets at BBVA, which along with Citigroup and Bancolombia led the trade.
“To make it index-eligible from day one they knew a bookbuild gave it a better shot of getting there.”
However, given the novelty of the trade, leads and public credit officials had their work cut out.
Not only did they have to get local accounts up to speed with the bookbuilding process, but an array of opinions over where the country’s first nominal rate 30-year bond should price further complicated deal execution.
That was especially true at a time when the impact of the Covid--19 pandemic was putting downward pressure on Colombia’s ratings, which in Fitch’s case was hovering just above junk at BBB– with a negative outlook.
“We wanted to find a level that made sense,” said Lewis Merl, an associate in BBVA’s LatAm DCM team. “We were able to find different ways to calculate pricing that we could present to investors in ways they could be interested in participating in large size.”
Testing the waters with initial price thoughts of mid-to-high 7%, leads brought guidance down to 7.375% (plus or minus 12.5bp) before landing the deal at yield of 7.25% after garnering an order book of Ps9trn.
Foreign investors comprised more than half the book and were drawn to the deal when the central bank had been in easing mode and faced no immediate threats from inflation.
The country's monetary authorities had cut the benchmark rate to an historic low of 2% just a month before, a trend that was being replicated in many parts of the world as policymakers tried to ease the economic strains imposed by the Covid-19 pandemic.
The bonds have since rallied considerably to around 107.857 on December 31 for a yield of 6.636%, according to Refinitiv data.
To see the digital version of this report, please click here
To purchase printed copies or a PDF of this report, please email gloria.balbastro@lseg.com
