Colombia Ecopetrol's First Bond Sale Receives Strong Demand
July 16 2009 - 2:23PM
Dow Jones News
The first foray of Colombian state-controlled oil company
Ecopetrol SA (EC) on the world bond market was welcomed by massive
demand from institutional investors.
Ecopetrol Thursday launched the sale of $1.5 billion in bonds
with a 10-year maturity at a spread of 425 basis points over U.S.
Treasurys, according to a syndicate source. Total demand for the
bonds was around $8 billion, according to fund managers.
The bonds will be priced later Thursday, in a transaction
managed by Barclays Capital and JPMorgan.
The premium on the bonds is at the tighter end of initial
guidance, set at 400-425 basis points over Treasurys.
"We expected 425 basis points over Treasurys; we have 410, which
still gives more than 100 basis points over local government
bonds," said Felipe Munoz, who manages a fund of bonds at local
brokerage Corredores Asociados and who is buying those bonds.
Ecopetrol, Colombia's largest company, was partly privatized in
2007 and has since embarked on an ambitious investment program to
more than double its production of oil and natural gas by 2015.
The company, which used to invest less than $1 billion a year
before 2006, has since raised spending dramatically and is
projected to invest $7 billion in 2009, out of a $60 billion
spending spree over 2008-2015.
The firm has concentrated on exploration projects in Colombia
and abroad, improving production and in acquisitions at home and
abroad, mainly in neighboring Peru.
As a result, Ecopetrol has raised its output to 482,000 barrels
of oil equivalent a day from 385,000 barrels of oil equivalent a
day in 2006. Its goal is to reach 1 million of barrels of oil
equivalent in 2015.
The company won't be able to reach that goal if it doesn't
quickly find new reserves in the many areas it now explores,
analysts have said.
Until this year, Ecopetrol had used its own cash flow to finance
its investment and had virtually no debt.
Before the floating of 10.1% of the company on the Colombian
stock market, Ecopetrol, as a fully owned state-company, couldn't
borrow freely without affecting the government's accounts.
Earlier this year, the company secured a 2.2 trillion Colombian
pesos ($1.09 billion) syndicated loan from local banks. Chief
Executive Javier Gutierrez had announced the company would seek
$3.7 billion in debt financing this year.
Ecopetrol's low debt and planned expansion make it an attractive
option for investors, said Yong Zhu, who manages a $350 million
emerging markets bond fund at DuPont Capital Management and who
said he will be buying some of the Ecopetrol paper.
"Is it cheap? Probably not; but it is safe," he said.
Additionally, investors have been seeking exposure to Colombia
as its economy has held up relatively well in the global economic
crisis and the Ecopetrol bonds are a proxy to government bonds, Zhu
said.
After the demand for the Ecopetrol bonds was so high, foreign
investors' demand for local government bonds increased, Cesar
Tovar, a market analyst with local brokerage Nacional de Valores,
said.
"The strong demand for Ecopetrol boosted foreigners' appetite
for Colombian bonds in general," he said. "Some people who won't be
able to buy as many Ecopetrol bonds as they had wanted will buy
local bonds, instead," he added.
The yield on the benchmark peso-denominated government bond was
down 8.973% at 12:44 p.m. EDT from 9.052% on Wednesday.
The shares of Ecopetrol traded unchanged at COP2,575 after
falling slightly earlier in the session. The shares reacted to the
price of oil, which was down early Thursday morning and was
recovering later in the day, Tovar said.
-By Inti Landauro, Dow Jones Newswires; 57-1-610 70 44, ext.
1131; colombia@dowjones.com
(Claudia Assis and Kejal Vyas in New York contributed to this
article.)